Concerns about the company’s balance sheet strength and enterprise risk management have prompted AM Best to downgrade the credit ratings of Bermudian-based Berking Re Ltd and place the new ratings under review with negative implications.

The ratings agency downgraded Berking’s financial strength rating to B- (Fair) from B (Fair) and the long-term issuer credit rating to “bb-” (Fair) from “bb+” (Fair).

It said the ratings reflect Berking Re’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.

The agency said the rating downgrades reflect a deterioration in Berking Re’s balance sheet strength fundamentals, as well as ERM assessment.

It said Berking Re’s capital base weakened in 2024, driven by its limited initial capital size and accumulation of operating losses.

The agency said the company’s risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio, is exposed to heightened potential volatility arising from the weaker-than-expected capital base along with the increase in risk exposure.

AM Best said: “In addition, the company has experienced a delay in the compilation of financial information for written business, which inhibits the preparation of timely business records, as well as the effectiveness of financial performance review and governance.

“AM Best expects Berking Re to take proactive actions to mitigate this shortcoming, as well as continue to bolster its corporate governance and risk management framework.”

The agency said the under review with negative implication status reflects AM Best’s uncertainty regarding the capital position of Berking Re, which depends on the execution of capital plans by the parent company, PFY Health Technology Co Ltd, and a clearer visibility into the company’s latest financial performance for full-year 2024.

Based on the information provided by the company, AM Best said PFY Cayman is in the process of fund raising, followed by a planned material capital injection to Berking Re in the near term.

The agency said: “In the event that PFY Cayman fails to successfully execute its capital plan without alternative contingent capital support, AM Best expects Berking Re’s capital position to exhibit a fast deteriorating trend and no longer be supportive of its current balance sheet strength assessment.

“Moreover, AM Best views Berking Re as being exposed to potential contagion risk stemming from its parent group, given that PFY Cayman and its major operating subsidiary, PFY Health Technology (Shanghai) Co Ltd, have exhibited capital erosion from sustained operating losses and adverse deviation from business and capital plans.”

It added: “The ratings will remain under review with negative implications pending the execution of PFY Cayman’s capital plans in the near future and more visibility into Berking Re’s audited financial performance for 2024.

“AM Best will continue to hold discussions with PFY Group’s management team on its financial performances and capital plan execution to assess the impact to Berking Re’s credit profile.

“AM Best also will continue to monitor the situation and provide updates as conditions warrant.”