The ratings reflect Bosna 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.
Bosna Re's balance sheet strength is underpinned by its risk-adjusted capitalization, which remained at the strongest level at year-end 2020, as measured by Best's Capital Adequacy Ratio (BCAR). The company's balance sheet strength is supported by a well-rated retrocession panel and prudent reserving. The relatively small capital base is an offsetting factor to the balance sheet strength assessment, as there is only a small capital buffer in absolute terms to protect against adverse events. The company paid extraordinary dividends between 2017 and 2019, returning proceeds from a large asset sale, which limited capital growth over that period. AM Best expects prospective risk-adjusted capitalization to benefit from internal capital generation, as the company returns to a normal level of dividend. Bosna Re's investment portfolio, which is primarily concentrated in BH, is a potential source of volatility as it exposes the company to the elevated levels of economic, political and financial system risk in BH.
Bosna Re has a track record of adequate operating performance, with a solid five-year (2016-2020) average combined ratio of 95.5%. In 2020, the company generated pre-tax profits of BAM 3.1 million (USD 1.8 million). AM Best expects Bosna Re's earnings to remain stable, as the company maintains a cautious underwriting strategy, which focuses on careful risk selection and the use of retrocession to limit net losses.
Bosna Re remains the only domestic reinsurer licensed to write life and non-life insurance in BH and is the leading local reinsurer, with a market share in excess of 70% based on 2020 gross written premiums (GWP). AM Best considers the company's competitive position defensible over the medium term, owing to the high regulatory barriers to entry in BH, the burdensome costs of operating in a small market and the company's longstanding relationships with local cedants. Bosna Re's underwriting portfolio is concentrated, with 41% of GWP derived from its top three cedants. Additionally, the company's geographic diversification is limited, with only 8% of GWP emanating from abroad. AM Best believes that the company's dominant market position provides some protection against the impact of the challenging economic and political conditions in BH.