HONG KONG--(BUSINESS WIRE)--AM Best has assigned a Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” to Mandal Daatgal JSC (Mandal) (Mongolia). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect Mandal’s balance sheet strength, which AM Best categorises as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
Mandal’s strong balance sheet strength assessment is underpinned by its strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), albeit the absolute size of its capital and surplus (C&S) remains small. Mandal was the first insurance company to be listed on the Mongolia stock exchange through an initial public offering in 2018. The company’s C&S grew by 160% in 2018, supported by both the capital raised from its IPO and profit retention during the year. The company’s capital continued to grow organically from retained earnings over the past few years and amounted to MNT 20.7 billion (USD 7.9 million) as of year-end 2019. The company’s investment portfolio mainly consists of short-term fixed-income investments including bonds and cash deposits, with a small exposure to equities. Although its asset allocation is considered prudent, Mandal’s portfolio comprises a material portion of domestic government and corporate bonds that are low-rated or non-rated. While the company does not underwrite natural catastrophe risk, it remains exposed to potential large claims from mega mining projects. Notwithstanding, the underwriting risk from the mega mining projects is mitigated through its reinsurance programme with a diversified reinsurer panel of good credit quality.
Mandal’s strong operating performance is supported by positive operating results in recent years with a strong return on equity of above 30% in 2019, while profit was largely retained with its first dividend paid during the same year. The company refined its underwriting portfolio in 2017 to improve its overall underwriting performance; the net combined ratio improved to 83% in 2019 from 100% in 2017, due to improvements in its net loss and net expense ratios. With a relatively stable net investment yield of approximately 14%, interest income generated by its fixed-income investments continued to support the company’s overall operating results and has been the company’s major profit driver over the past few years. Going forward, AM Best expects that Mandal’s fixed-income assets will continue to support its overall operating results.
Mandal’s business has expanded rapidly in recent years. In 2019, the company was the second largest player out of 14 non-life insurance companies in Mongolia’s non-life insurance market, based on gross premium written. Notwithstanding, the company’s book of business remains limited in scale and concentrated on Mongolia’s small non-life insurance market. The company’s underwriting portfolio is diversified with major lines of business including medical, contractor’s all risk, motor physical damage and property. The company mainly utilises its direct sales team to source business, which accounted for over 80% of 2019 GPW.
Although Mandal is well-positioned at its current rating level, negative rating actions could occur if the company experiences a material deterioration in its risk-adjusted capitalisation, – for example, due to ongoing sizeable dividend payouts – to a level that no longer supports the strong balance sheet strength assessment, or if its operating performance exhibits a sustained worsening trend. Negative rating actions could also occur if the company exhibits a material decline in the quality of its ERM to a level that no longer supports the appropriate ERM assessment.
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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