AM Best has upgraded Milli Reasurans' (Milli Re) Financial Strength Rating (FSR) to 'C++' (Marginal) from 'C+' (Marginal) and Long-Term Issuer Credit Rating (Long-Term ICR) to 'b' (Marginal) from 'b-' (Marginal). Concurrently, AM Best has revised the outlook for the Long-Term ICR to 'Positive'. The outlook for the FSR is 'Stable'.
Milli Re has a track record of generating adequate earnings, as evidenced by its return on equity (ROE), which has, on average, exceeded 35% over the past five years (2020-2024), according to the global credit rating agency.
AM Best said, “The company’s ROE should be viewed in the context of its main operating environment of Turkiye, which, since 2021, has been characterised by extremely high inflation. Overall returns are driven by solid investment income, supported by Turkiye’s high-interest-rate environment, and foreign exchange gains.
“Underwriting performance continues to be a drag on earnings, demonstrated by a consolidated and unconsolidated five-year weighted average combined ratio of 120% and 157%, respectively, adversely impacted by the depreciation of the Turkish lira and inflation. The depreciation of the lira has had a particularly significant impact on unconsolidated underwriting results, given that more than two-thirds of Milli Re’s business is underwritten in foreign currency.”
Rationale for rating upgrades
The credit ratings reflect Milli Re’s balance sheet strength, which AM Best assesses as weak, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management.
AM Best said, “The rating upgrades reflect the improvement in Milli Re’s consolidated balance sheet strength fundamentals, notably through increased risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), underpinned by good earnings retention. In addition, the upgrades consider the stabilisation of economic conditions in Turkiye, where the company is headquartered and where the majority of its business and assets are located.
The positive outlook on the Long-Term ICR reflects the favourable trend in Milli Re's balance sheet strength fundamentals, which is characterised by improving risk-adjusted capitalisation and capital quality.
AM Best also said, “Milli Re has a strong market position in Türkiye as the only locally capitalised, privately owned reinsurer. In addition, the company’s profile benefits from its ownership of Anadolu Sigorta, which is among the top three largest insurers in the country’s direct insurance market.”