AM Best has placed under review with negative implications the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of "bbb+" of Tune Protect Re Ltd. (TPR) (Malaysia).
The Credit Ratings (ratings) of TPR have been placed under review with negative implications to reflect uncertainty surrounding the near-to-medium term impact of the COVID-19 pandemic on the company’s operations and rating fundamentals.
As a single-product focused reinsurer, TPR’s business model is linked closely to, and heavily reliant on, travel insurance products that are distributed principally through the AirAsia group, an airline operator headquartered in Malaysia. In the face of the prevailing pandemic and associated global restrictions on airline travel, the operations of AirAsia and other partner airlines have been disrupted severely during the first half of 2020. Consequently, this has led to a notable reduction in business generation and premium volumes for TPR, which is expected to persist at least over the near term. AM Best currently views there to be significant uncertainty regarding the future level of domestic and international airline travel in Asia and Middle East countries, for which TPR principally provides travel insurance protection. During this period of disruption to airline travel, AM Best expects TPR to place emphasis on its non-travel products and other business initiatives; however, these are currently small contributors to its overall premium base.
TPR has a track record of strong operating performance, as evidenced by a five-year average combined ratio of 59% and operating ratio of 57% (2015-2019). Despite this, AM Best expects operating results to experience a moderate level of volatility over the near term. Whilst the pandemic is not expected to drive a material shift in TPR’s loss ratio, as a result of its policy coverages typically excluding pandemic risk, the reduction in business volumes is expected to drive a higher expense ratio and lower operating results.
TPR’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), remained at the strongest level at year-end 2019. Notwithstanding this, the company’s modest-sized absolute capital base increases the sensitivity of capital adequacy to shock events, changes in operating performance and/or material movements in key balance sheet items.
AM Best will continue to monitor developments closely over the near term and expects to resolve the under-review status following a full assessment of prospective rating fundamentals. Among other factors, AM Best will need to consider any implications the COVID-19 pandemic has on the company’s future operating performance and business profile fundamentals.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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