S&P downgrades Thai Reinsurance
Standard & Poor's Ratings Services has downgraded Thai Reinsurance Plc, on weakening financial profile due to huge flood-inflicted losses in the manufacturing sector in Thailand.
A further cut is possible, as the rating remains on CreditWatch, with negative implications. The rating could be further downgraded by one notch or more, depending on the severity of the loss development to Thai Re's retrocession programme and capital base, S&P said in a statement.
The long-term counterparty credit and insurer financial strength ratings on Thai Reinsurance was lowered to 'BBB+' from 'A-'.
"The downgrade reflects our view that Thai Re's relative capital strength and overall financial profile have weakened to levels that are not commensurate with an 'A' rating," said Standard & Poor's credit analyst Paul Clarkson. "The weakening reflects the insurer's exposure to the recent flooding in Thailand and our changed view on the industry risk in the country's non-life insurance market. We no longer consider the market to be low catastrophe prone."
S&P believes that Thai Re has significant risk exposure to the recent flooding. The company's credit profile has already weakened, given its small capital base compared to other reinsurers and its risk profile. Thai Re's current protection from its retrocession cover is adequate for its reported losses. Nevertheless, the losses are still uncertain and the company's ultimate gross loss exposure could exceed its current retrocession covers, weakening its financial profile further.
"Based on information collected from our rated insurers and market data, we note that market gross loss estimates have already exceeded US$10 billion."
It noted that while foreign insurers operating in Thailand and international reinsurers are likely to pick up the largest share of the total estimated flood losses, Thai Re has been actively de-risking its business in recent years. The company has certain treaties, but these are, however, subject to high uncertainty in loss development.
"We kept the rating on CreditWatch with negative implications to reflect the uncertainty over the losses to the company due to the flooding," said Clarkson. "We intend to resolve the CreditWatch action within three month, on receiving updated information on the losses."
