AM Best has downgraded the Financial Strength Rating to B- (Fair) from B+ (Good) and the Long-Term Issuer Credit Rating to bb- from bbb- of Royal Insurance Corporation of Bhutan Limited (RICB) (Bhutan). Additionally, AM Best has placed these Credit Ratings (ratings) under review with negative implications.
The rating downgrades reflect a deterioration in AM Bests view of RICBs balance sheet strength fundamentals. While RICB has yet to finalize its year-end 2018 financial statements, AM Best expects the company to record an operating loss for the year, driven by a provision held against non-performing loans arising from its credit finance business. The impact of the operating loss is anticipated to result in a significant reduction in RICBs reported shareholders equity, which AM Best expects will lead to weakened risk-adjusted capitalization at year-end 2018, as measured by Bests Capital Adequacy Ratio (BCAR). In addition, the latest rating actions reflect concern over the companys liquidity position and its ability to strengthen its capital base, as well as to comply with local regulatory solvency requirements.
The under review with negative implications status reflects the uncertainty that remains around the finalization of RICBs year-end 2018 financial position and prospective expectations. In order to resolve the under review status, AM Best expects to conduct a full assessment of RICBs 2018 and forward-looking balance sheet strength and operating performance fundamentals. In addition, AM Best will undertake a further review of the companys risk management practices and consider any remedial actions being implemented to manage its exposure to non-performing loans.
The ratings reflect RICBs balance sheet strength, which AM Best categorizes as adequate, as well as its strong operating performance, neutral business profile and marginal enterprise risk management.
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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This press release relates to Credit Ratings that have been published on AM Bests website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Bests Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Bests Credit Ratings. For information on the proper media use of Bests Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Bests Credit Ratings and AM Best Rating Action Press Releases.
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