AM Best Assigns Berking Re With Stable Outlook
AM Best has assigned the Financial Strength Rating of B [Fair] and the Long-Term Issuer Credit Rating of “bb+ [Fair] to Berking Re Limited [Bermuda]. The outlook assigned to these Credit Ratings is stable.
The ratings agency said, “The ratings reflect Berking Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management [ERM].
“Berking Re was incorporated in Bermuda on 11 February 2022 and licensed as a Class 3A insurer effective 6 January 2023. The company is wholly owned by PFY Health Technology Co., Ltd. [PFY Cayman or PFY Group].
“Berking Re was initially capitalised at USD 3.0 million as of year-end 2022. According to its unaudited financial statements, the company received capital injections during 2023 and its share capital and contributed surplus increased to USD 4.3 million as of the end of October 2023.
“Berking Re’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio [BCAR], is projected to be at a robust level throughout its initial five-year business plan [2024-2028]. This result is supported by Berking Re’s prudent investment strategy, albeit the BCAR score shows a moderate downward trend over the five-year period as the company expands its underwriting portfolio. Notwithstanding, the limited size of the company’s current capital and surplus exposes its balance sheet strength to potential volatility arising from uncertainties in executing business and capital plans. In addition, in the event that PFY Group is not able to provide capital support to Berking Re in a timely manner, the company’s capital position may be subject to further pressure.
“As a start-up reinsurance company, Berking Re expects to report a net loss in its first year due to set-up costs and limited premiums written; it expects to be profitable in the second year along with top line growth and stable investment returns. The company is exposed to both elevated operational risk and business execution risk; however, it is partially offset by the expected prudent underwriting strategy and risk selection, as well as the strategic and operational support from PFY Group.
“The company will focus on health reinsurance in China, with major product lines in medical and 90-day pharmacy insurance, as well as personal accident and liability products. While the overall premium scale remains very small with product concentration in the initial phase, the product risk of health insurance is considered moderate. Berking Re expects to grow its business scale by sourcing the majority of its premiums written through the affiliated company PFY Health Technology [Shanghai] Co., Ltd.’s established insurance client network.
“Berking Re is in the process of establishing its ERM framework. AM Best expects Berking Re to develop its ERM framework in line with its implementation plan, as the company grows its business size and risk exposure increases.
“AM Best expects Berking Re’s corporate governance, coupled with regulatory oversight, to be adequate in safeguarding the company’s capital and assets. However, the company remains exposed to the potential contagion risk if the parent group experiences adverse financial developments or negative external factors.
“Negative rating actions could occur if the company experiences material deviations from its business plan, including adverse deviations from its projections on business scale and operating performance, or a significant deterioration in risk-adjusted capitalisation. Negative rating actions also could occur if there are substantial adverse deviations in PFY Group’s capital plan or adverse development in PFY Group’s business plan, which have a material negative impact on Berking Re’s business operations and credit fundamentals. Positive rating actions could occur if the company can further strengthen its balance sheet strength in line with the expansion plan.”
