Bosnian reinsurer has 90% market share in home market

AM Best has assigned a financial strength rating of B+ (Good) and an issuer credit rating of “bbb-” to Bosna Reinsurance Co. Ltd (Bosna Re) (Bosnia and Herzegovina). The outlook for both ratings is stable.

The ratings reflect Bosna Re’s good business profile and good risk-adjusted capitalisation, offset by a volatile operating performance.

AM Best believes that Bosna Re’s risk-adjusted capitalisation is good and will remain supportive of the company’s business growth in the foreseeable future. The risk profile of the insurance portfolio is relatively conservative given its short-tail nature, and the reinsurance programme is adequate and is placed with companies with secure ratings.

In AM Best’s view, Bosna Re has a strong dominant position, albeit its small size, in the domestic market in Bosnia and Herzegovina with 90% market share. Its strengths are business reputation, knowledge of local businesses and strong relationships with its clients. Bosna Re benefits from the loyalty of clients, which are cross shareholders of the company. The company’s portfolio mix is relatively limited as it is concentrated mainly in motor, property, fire and other perils and accident and health. AM Best believes that it is unlikely that the company’s portfolio mix will have any significant changes in the next few years unless there are any imposed by the local regulator in terms of introduction of new obligatory insurance classes.

Despite Bosna Re’s positive technical results in 2007, the underwriting account has been volatile and underperforming in the past due to some changes in accounting and reserving policies. In AM Best’s view, the reserving methodology implemented in 2006 has yet to be tested.

Going forward, AM Best believes that overall results will continue to be positive, with operating profits being at a moderate level, although quite volatile, given the relatively small number of cedants and the size of the market in which the company operates. In addition, efficiency of the new reserving system, which is still in the implementation process, will be tested in the next few years.