A.M. Best affirms credit ratings of Polskie Towarzystwo Reasekuracji S.A.

A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of "a-" of Polskie Towarzystwo Reasekuracji S.A. (POLISH Re) (Poland). The outlook of these Credit Ratings (ratings) remains stable.

The ratings reflect POLISH Re's balance sheet strength, which A.M. Best categorises as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM). The ratings also reflect the lift POLISH Re receives due to the support provided by its ultimate parent, Fairfax Financial Holdings Limited (Fairfax); in particular, the explicit parental guarantee in place for Polish Re. Fairfax has demonstrated its commitment to Polish Re through three capital injections in 2015, 2013 and 2009. In addition, Fairfax provides technical support in areas such as reserving, retrocession protection and investment management services.

POLISH Re's balance sheet strength is underpinned by the strongest level of risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio, supported historically by good, albeit volatile, internal capital generation. An offsetting factor for Polish Re's balance sheet strength assessment is the historical volatility in reserving, principally associated with motor third-party liability (MTPL) business in Poland, which the company exited in 2014. Although MTPL reserves are reducing as the portfolio runs off, reserving uncertainty will persist for some time. Additional offsetting factors include exposure to non-rated retrocessionaires and to foreign exchange risk, as the company does not match assets and liabilities by currency.

POLISH Re's historical operating performance has been subject to volatility, with pre-tax profits ranging from a loss of PLN 22.5 million to a gain of PLN 22.0 million over the 2013-2017 period. The main source of volatility has been the MTPL portfolio, which was put into run-off in 2014. Tightened underwriting discipline and improved claims experiences throughout the financial year led to improvements in 2017 underwriting performance, as demonstrated by a technical profit of PLN 13.1 million, up from a loss of PLN 4.7 million in 2016.

POLISH Re benefits from its diversified portfolio offering and long-standing presence across Central Eastern Europe and the Commonwealth of Independent States, as well as its position as the sole domestic reinsurer in Poland. However, the reinsurer's operations are fragmented, spanning 40 markets, and its profile is constrained by its lack of scale in any given market.



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