AM Besthas assigned the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) to Mongolian National Reinsurance JSC. The outlook assigned to these Credit Ratings (ratings) is stable. The ratings reflect Mongolian Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
Incorporated in 2014, Mongolian Re was established under its original name of Agriculture Reinsurance JSC as a wholly owned company of the Ministry of Finance of Mongolia (MoF). Mongolia Re is domiciled in Mongolia, where 13% of the country’s gross domestic product is generated from an agriculture sector that is dominated by livestock, according to the World Bank. The company acts as the sole operator of the index-based livestock insurance (IBLI) pool, supporting social stability by providing nationwide insurance coverage to livestock and safeguarding herder households’ welfare.
Mongolian Re broadened its business scope in 2018 to include additional reinsurance lines of business such as property, motor, aviation, liability and personal accident. In 2022, Mongolian Re’s gross written premium (GWP) was MNT 4.0 billion (USD 1.5 million). The company has maintained a leading market position in the livestock and motor reinsurance segments.
Mongolian Re’s very strong level of balance sheet strength is underpinned by its risk-adjusted capitalization being assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s adjusted capital and surplus has been on an upward trend for the past five years, with a compound annual growth rate of 4.3%.
The company has appropriate retrocession coverage for its catastrophe-exposed lines, ceded to reinsurers with sound credit quality. This protects the company’s capital position from material negative impacts from extreme weather events. Notwithstanding, a partially offsetting factor to the company’s balance sheet strength assessment is its small capital size.
AM Best considers Mongolian Re’s operating performance as adequate. The company reported a robust compound annual growth rate increase in gross written premium of 25.2% from 2017 to 2022 and delivered an average return-on-equity (ROE) of 7% over the same five-year period, mainly attributed to its robust and stable investment income from time deposits. The five-year average net investment yield was 11.2%. Conversely, Mongolian Re’s underwriting performance has been unfavourable, attributed to its volatile loss ratio from catastrophe losses and high management expense ratio due to its limited portfolio sizes. The company projects that they would gradually manage down the expense ratio from expanding its premium scale and improve its operating efficiency over the short to intermediate term.