AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) of Mongolian National Reinsurance JSC (Mongolian Re) (Mongolia). The outlook of 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).

Mongolian Re’s very strong balance sheet assessment is underpinned by its strongest risk-adjusted capitalisation level as measured by Best’s Capital Adequacy Ratio (BCAR). Its investment portfolio remains liquid and prudent, consisting of only cash and deposits mainly placed with domestic systemically important banks. The company maintains appropriate retrocession coverage over its index-based livestock insurance (IBLI) and other volatile lines, with sound credit quality retrocessionaires counterparties. In the winter of 2023, and the spring of 2024, Mongolian Re experienced the highest IBLI loss in its operating history and released some of its IBLI catastrophic loss reserve in 2024. Going forward, AM Best expects the company to gradually replenish its IBLI reserves for future claims. Offsetting factors include its limited capital size, which was MNT 48.95 billion (USD 18.68 million) as of year-end 2024, under IFRS 17 accounting standard, as well as the inherent systemic risk in Mongolia’s financial and exchange markets compared to more developed ones.

AM Best views Mongolian Re’s operating performance as adequate. The company has delivered an average 30% annual gross premium written growth since 2018, and net profits each year. While maintaining a mid-single-digit return on equity (ROE) from 2018 to 2023, its 2024 ROE declined mildly to 2.3% due to a significant IBLI claim. Its net profit is driven by robust investment results, delivering an annual investment yield of over 10% over the years. On the flip side, Mongolian Re’s underwriting performance remained unprofitable, attributed to its volatile loss performance and high expense ratio. As its insurance portfolio size increases, the company expects its expense ratio to gradually decline with the economy of scale. Nonetheless, over the short term, while expecting a positive bottom line, investment income will remain the profit driver while underwriting performance remain marginal.

Mongolian Re’s business profile is assessed as limited, considering its humble top line and geographic concentration in the Mongolia market, when compared to its international non-life reinsurance peers. Incorporated in 2014, as a wholly owned company of the Ministry of Finance of Mongolia (MoF), Mongolian Re has been the sole operator of the IBLI pool. With the agriculture sector contributing over 10% of Mongolia’s gross domestic product and one third of the nation’s labor force, Mongolian Re plays a critical role in the domestic insurance market by providing nationwide insurance coverage to the welfare of livestock and herders. Since 2018, the company gradually expanded its coverage to other lines including property, motor, aviation, liability, personal accident and guarantee. The company has formed strategic partnerships with more sophisticated global reinsurers for technical support in emerging lines and new risks.

The company’s ERM is assessed as appropriate. Mongolian Re has a defined risk appetite statement and periodically monitors key risk indicators to govern its key risks. The company performs catastrophe modelling on livestock mortality and submits its risk and solvency reports to the local insurance regulator, the Financial Regulatory Commission, on a regular basis. Its solvency ratio maintains a healthy buffer over the regulatory minimum level.

Negative rating actions could occur if Mongolian Re’s operating performance deteriorates to a level no longer supportive of the current assessment. Negative rating actions could also occur if Mongolian Re’s risk-adjusted capitalisation is significantly eroded by factors such as escalating underwriting or investment risk, excessive dividends, or sustained operating losses and is no longer supportive of the current assessment of balance sheet strength. Negative rating actions could also occur if the company fails to execute appropriate ERM control, for example, experiencing unexpected changes in business and investment strategies subject to undue influence from its shareholders, which leads to a materially negative impact to its credit fundamentals.

Albeit unlikely in the intermediate term, positive rating actions could occur if Mongolian Re demonstrates consistent improvement in its underwriting performance and sustains a decrease in its expense ratio, while maintaining robust high investment returns.

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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