A.M. Best has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of “bbb-” of Royal Insurance Corporation of Bhutan Limited (RICB) (Bhutan). The outlook for both ratings is stable.
The ratings reflect RICB's adequate risk-adjusted capitalization, consistently favorable operating performance and its dominating market position in Bhutan.
RICB’s capital and surplus has registered healthy growth in the five-year period from 2009 to 2013, driven by its profitable underwriting and investment income. The company’s commission income stemming from its reinsurance arrangements has also provided a stable source of operating income over the past five years.
RICB is the larger of the two domestic insurance companies in Bhutan and primarily engages in insurance, reinsurance and the lending business. The company has a monopoly on life and group insurance in Bhutan. With an established leading market position, RICB captured an approximate 72% market share in the general insurance market.
Partially offsetting these positive rating factors are Bhutan’s economic environment and RICB’s high debt leverage.
Bhutan’s economic growth continued to be moderate, and its limited market and relatively small financial sector has posted challenges to the company. RICB’s debt-to-capital ratio was relatively high, and it is anticipated that this leverage will remain high in the near term. RICB’s elevated leverage is mostly related to its lending activities, where the company has appropriate measures in place to mitigate such credit risk.
Factors that could lead to positive rating actions include continuing improvement in RICB’s operating results and risk-adjusted capitalization, and an interest rate spread that supports investment return. Alternatively, negative rating actions could occur if there is material deterioration in operating performance and heightened credit risk, resulting in a substantial decline in its risk-based capitalization level.
The methodology used in determining these interactive ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.
This rating announcement has been issued by A.M. Best Asia-Pacific Limited, which is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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