The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect Dunav Re's balance sheet strength, which A.M. Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. Dunav Re's credit profile is negatively affected by the financial strength of its parent company.
Since its incorporation in 1977, Dunav Re has developed its profile as a reinsurer for its parent company, and increasingly for third party cedants. Dunav Re's risk-adjusted capitalisation is assessed at the strongest level, as measured by Best's Capital Adequacy Ratio, and is expected to remain at this level, with internal capital generation supporting the company's moderate growth plans. Offsetting factors in the balance sheet strength assessment include Dunav Re's asset concentration towards Serbian government bonds, the small size of the company's capital base, and its high dependence on reinsurance. This latter factor is mitigated partly by the good credit quality of Dunav Re's retrocession panel.
Dunav Re has a track record of improving, albeit volatile, underwriting profitability. In 2017, the company reported a combined ratio of 69%, significantly lower than its five-year average combined ratio (2013-2017) of 100.5%, with the longer-term average combined ratio negatively impacted by catastrophe losses in 2013 and 2014. The company's profit before tax was RSD 162 million in 2017, down from RSD 208 million in the prior year, as exchange losses impaired the company's investment returns. Prospectively, A.M. Best expects Dunav Re to achieve good but highly volatile underwriting results, and to report return on equity of approximately 10%, in line with 2017.
Dunav Re generates its business primarily in Serbia, with Dunav being its main cedant. The company is also active in the former Yugoslav region and to a minor extent, in central Europe. Dunav Re's profile is limited in terms of business volumes, with potential increasing competition from international players over the longer term, although the reinsurer currently has a dominant position in its core market of Serbia.