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A.M. Best Affirms Credit Ratings of Polskie Towarzystwo Reasekuracji S.A.

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A.M. Best has affirmed the Financial Strength Rating of A-
(Excellent) and the Long-Term Issuer Credit Rating of "a-" of Polskie
Towarzystwo Reasekuracji S.A. (Polish Re) (Poland). The outlook of these
Credit Ratings (ratings) remains stable.

The ratings reflect Polish Re's balance sheet strength, which A.M. Best
categorises as strong, as well as its marginal operating performance,
limited business profile and appropriate enterprise risk management
(ERM). The ratings also reflect the lift Polish Re receives due to the
support provided by its ultimate parent, Fairfax Financial Holdings
Limited (Fairfax); in particular, the explicit parental guarantee
in place for Polish Re. Fairfax has demonstrated its commitment to
Polish Re through three capital injections in 2015, 2013 and 2009. In
addition, Fairfax provides technical support in areas such as reserving,
retrocession protection and investment management services.

Polish Re's balance sheet strength is underpinned by the strongest level
of risk-adjusted capitalisation, as measured by Best's Capital Adequacy
Ratio, supported historically by good, albeit volatile, internal capital
generation. An offsetting factor for Polish Re's balance sheet strength
assessment is the historical volatility in reserving, principally
associated with motor third-party liability (MTPL) business in Poland,
which the company exited in 2014. Although MTPL reserves are reducing as
the portfolio runs off, reserving uncertainty will persist for some
time. Additional offsetting factors include exposure to non-rated
retrocessionaires and to foreign exchange risk, as the company does not
match assets and liabilities by currency.

Polish Re's historical operating performance has been subject to
volatility, with pre-tax profits ranging from a loss of PLN 22.5 million
to a gain of PLN 22.0 million over the 2013-2017 period. The main source
of volatility has been the MTPL portfolio, which was put into run-off in
2014. Tightened underwriting discipline and improved claims experiences
throughout the financial year led to improvements in 2017 underwriting
performance, as demonstrated by a technical profit of PLN 13.1 million,
up from a loss of PLN 4.7 million in 2016.

Polish Re benefits from its diversified portfolio offering and
long-standing presence across Central Eastern Europe and the
Commonwealth of Independent States, as well as its position as the sole
domestic reinsurer in Poland. However, the reinsurer's operations are
fragmented, spanning 40 markets, and its profile is constrained by its
lack of scale in any given market.

This press release relates to Credit Ratings that have been published
on A.M. Best's 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 A.M. Best's
Recent
Rating Activity
web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view
Understanding
Best's Credit Ratings
. For information on the proper media
use of Best's Credit Ratings and A.M. Best press releases, please view
Guide
for Media - Proper Use of Best's Credit Ratings and A.M. Best Rating
Action Press Releases
.

A.M. Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit
www.ambest.com
for more information
.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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