Contagion risks to Peak Re could “increase as Fosun’s credit profile weakens”

Moody’s Investors Service has placed on review for downgrade the A3 insurance financial strength rating (IFSR) of Peak Re. The outlook has been changed to ratings under review from stable.

The review for downgrade follows Moody’s rating action on Peak Re’s majority shareholder, Fosun International Limited, which is also on review for downgrade.

The rating action on Fosun mainly reflects concern that public bond market investors’ increasing risk aversion will pressure Fosun’s liquidity while credit contagion risk from Fosun’s core property subsidiaries is also increasing.

Governance factors under the rating agency’s ESG framework is a key driver of the rating action, given Peak Re’s ownership by Fosun and Fosun’s governance practices.

Contagion risks concern

The rating action on Peak Re mainly reflects Moody’s concern that contagion risks to Peak Re will increase as Fosun’s credit profile weakens.

The contagion risks, particularly via reputational damage, could increasingly strain Peak Re’s business growth and capital market access.

In addition, Moody’s considers the contagion risks that Fosun might influence Peak Re’s risk appetite. 

Given the weakening credit profile of Fosun, these contagion risks would linger despite the ringfencing measures in place that safeguard the financial resources at Peak Re.

These measures include an independent board without majority control by Fosun, stringent related-party transaction policies and strong regulatory oversight.

The rating agency considers 

That said, Peak Re’s standalone credit profile remains sound, reflecting the reinsurer’s good franchise in the Asian reinsurance market, solid capitalisation, expanding product and geographic diversification, and product mix with low reserving risk.

These strengths are offset by Peak Re’s relatively lower profitability than its more established global peers, despite a gradual improvement in recent years.

Peak Re is incorporated in Hong Kong SAR, China and is ultimately 87% owned by Fosun International Limited.

The reinsurer provides property, casualty, life and health reinsurance. At the end of 2021, its total assets stood at $5.7 billion and shareholders’ equity at $1.5 billion.