The ratings reflect Bosna Re's balance sheet strength, which A.M. Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
Bosna Re's balance sheet strength is supported by the strongest level of risk-adjusted capitalisation, which benefits from robust internal capital generation, a well-rated retrocession panel and prudent reserves. Risk-adjusted capitalisation strengthened considerably in 2017 owing to the sale of a material private equity investment; however, A.M. Best expects prospective risk-adjusted capitalisation to deteriorate marginally as the sale proceeds are distributed to shareholders as extraordinary dividends. Offsetting balance sheet strength factors include the potential volatility of earnings from the investment portfolio, limited access to financial flexibility and the relatively small overall capital base, which exposes risk-adjusted capitalisation to volatility.
Bosna Re maintained its market leading position in BH in 2017, commanding an 77% share of reinsured premiums in the Bosnian market (based on gross written premiums); it remains the only domestic reinsurer licenced to write life and non-life insurance. A.M. Best considers the company's competitive position defensible over the medium term, owing to the high barriers to entry in BH, which include regulatory constraints and the burdensome costs of operating in a small market. Bosna Re's underwriting portfolio remains concentrated, with approximately 45% of its gross written premiums derived from its top three cedants (some of which are shareholders). Additionally, the company's geographic diversification remains limited, with only 12% of gross premiums emanating from outside of BH. A.M. Best believes that the company's dominant domestic market profile provides some protection against the potential impact from the challenging economic and political conditions in BH.
Bosna Re has a track record of stable operating performance, generating pre-tax profits of BAM 2.6 million (USD 1.6 million) in 2017. Stable underwriting performance underpins the company's results, with a five-year average combined ratio of 96.1% (2013-2017), further supplemented by investment earnings. A.M. Best expects Bosna Re's earnings to remain stable, as the company maintains a cautious underwriting strategy.