Peak Re’s financial strength rating downgraded by Moody’s

Peak Re has seen its insurance financial strength rating (IFSR) downgraded from A3 to Baa1 by Moody’s.

Moody’s also announced that it has lowered the rating of the subordinated debt backed by the subordinated perpetual notes issued by Peak Re (BVI) Holding Limited from Baa3(hyb) to Baa2(hyb). These securities are irrevocably and unconditionally guaranteed by Peak Re. At the same time, Moody’s changed the outlook to negative based on the ratings under review.

The company wrote in a statement announcing the downgrade: “Peak Re’s IFRSRI downgrade to Baa1 from A3 with outlook changed to negative from ratings under review follows Moody’s rating action on August 23, 2022 to downgrade Peak Re.’s Corporate Family Rating (CFR) majority shareholder Fosun International Limited (B1 negative) to B1 from Ba3 and change outlook to negative from pending ratings. ‘exam.

He added: “Fosun’s CFR downgrade reflects the company’s weak liquidity profile and high rollover risk in a challenging funding environment in the onshore and offshore bond markets. The negative outlook on Fosun reflects uncertainties surrounding the company’s execution of asset sales and fundraising against its large short-term debt maturities over the next 12 months, and its ongoing challenges. to balance its liquidity needs and maintain the quality of its investment portfolio.

Moody’s wrote that the rating action on Peak Re primarily takes into account growing contagion risks to Peak Re from Fosun’s weakened credit profile, particularly via reputational damage, which could increasingly harm the business growth and financial flexibility of Peak Re, including its access to capital markets.

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He wrote: “These contagion risks would persist despite the ring-fencing measures in place that protect Peak Re’s financial resources, including an independent board of directors with no majority control by Fosun, strict related party transaction policies and strict regulatory oversight. Moody’s rating action on Peak Re reflects ratings positioning to reflect these contagion risks, as Fosun’s rating was downgraded to deeper speculative levels. Accordingly, Moody’s views governance risks in its environmental, social and governance (ESG) framework as a key driver of today’s rating action, given Fosun’s ownership of Peak Re and the practices of governance of Fosun.

He added: “The IFSR Baa1 on Peak Re incorporates a one notch downside adjustment to the reinsurer’s a3 standalone credit profile, reflecting Peak Re’s exposure to Fosun’s increased contagion risk, who has a significantly lower credit profile.”

The company said Peak Re’s a3 standalone credit profile continues to reflect the reinsurer’s strong franchise in the Asian reinsurance market, strong capitalization, expanding geographic and product diversification, and product mix. with low provisioning risk. These strengths are offset by Peak Re’s relatively weaker profitability than its more established global counterparts, despite gradually improving in recent years. In addition, Fosun’s high debt leverage and low liquidity will continue to limit the reinsurer’s financial flexibility.

Moody’s said an upgrade was unlikely, given the negative outlook. However, he said that could change if Fosun’s rating outlook becomes stable again, if Fosun’s stake in Peak Re is sold or if Fosun’s contagion risks do not increase significantly.

These latest announcements follow Moody’s which placed the company’s IFRS rating under review for downgrade in June. The agency said at the time that it feared contagion risks at Peak Re would increase as Fosun’s credit profile weakens.

The action follows the rating action placed to review the Ba3 downgrade of the Fosun International Limited family of companies – which owns 87% of Peak Re’s shares – on June 14, 2022. Fosun’s rating was placed under review due to concerns that public bond market investors’ increased risk aversion would put pressure on Fosun’s liquidity. At the same time, the risk of credit contagion from Fosun’s main real estate subsidiaries is also increasing.

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Carol N. Valencia