Moody’s Ratings has changed the outlook of Peak Re to positive from stable, citing that the contagion risk from the reinsurer’s majority shareholder, Fosun International Limited, is declining.
According to the rating agency, the contagion risk, particularly in the form of strain on business growth and financial flexibility, is expected to continue to decline in the next 12 months because of Peak Re’s effective ring-fencing measures.
Moody’s has additionally affirmed the Baa1 insurance financial strength rating (IFSR) on Peak Re, and affirmed the Baa3 (hyb) backed subordinated debt rating of the subordinated perpetual securities issued by Peak Re.
As per Moody’s, the rating affirmation primarily reflects Peak Re’s strong standalone credit profile of a3, supported by its solid position in the Asian reinsurance market, robust capitalisation, and increasing product and geographic diversification.
However, these strengths are reportedly tempered by Fosun’s high debt levels and limited liquidity, as well as Peak Re’s exposure to natural catastrophe risks.
At the same time, Peak Re’s Insurance Financial Strength Rating (IFSR) of Baa1 remains one notch below its standalone profile to account for the potential contagion risk stemming from Fosun’s significantly weaker credit standing.
Moody’s added, “Peak Re continues to operate independently from Fosun, particularly the reinsurer’s capital management and financing activities. This is despite Fosun’s high debt leverage and weak liquidity in the past few years. Peak Re has not paid any dividends nor provided financing to Fosun or its affiliates.
“The ring-fencing measures at Peak Re have proven effective. These measures include an independent board where Fosun does not have majority control, as well as stringent board oversight over related party transactions.
“Fosun’s near-term liquidity buffer has also improved with the offloading of several businesses in the last two years. As such, we assess that the probability of capital flows from Peak Re to support Fosun’s liquidity needs is low.”
The rating agency concluded, “We expect that the reinsurer’s underwriting profitability will continue to improve in 2024 compared to 2023 and remain solid over the next 12-18 months.
“The reinsurer’s P&C combined ratio stood at 87% in 2023. Its strong underwriting results have benefitted and will continue to benefit from prudent underwriting, favorable terms and conditions for reinsurers.
“The declining but still high interest rates will support recurring investment income. Its solid profitability will also support the reinsurer in maintaining a solid capitalization in the next 12 months.”
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