HONG KONG--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of Blue Cross (Asia-Pacific) Insurance Limited (Blue Cross) (Hong Kong). The outlook for both ratings is stable.
The rating affirmations reflect Blue Cross' strong risk-adjusted capitalization and its solid market presence in the local accidental and health insurance (A&H) market through its diversified distribution channels.
Blue Cross' risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), improved and remained sound. The total capital and surplus was strengthened to HKD 922 million at year-end 2010, compared to HKD 719 million at year-end 2009, mainly due to higher levels of retained earnings and fair value reserve recorded during the year. A.M. Best believes the company's strong risk-based capital will remain supportive in light of its prospective business growth going forward.
Blue Cross has maintained a solid market presence in the local A&H market (being the fifth-largest medical insurer by gross premiums written in 2010) and expects to grow its non-life portfolio continuously through its supportive distribution platform. Brokers and agents, which are the company's core distribution channel, constituted over 60% of the non-life gross premiums written (GPW) for 2010. In addition, Blue Cross has taken initiatives to strengthen its direct sales channel, accounting for 29% (versus 27% for 2009), while the BEA (please define) sales channel and e-channel generated the remaining book of business.
Partially offsetting these positive rating factors are Blue Cross' unfavorable claims experience in its medical portfolio, and the company's earnings exposure to the fluctuation in the financial markets in view of the current investment portfolio mix.
The loss ratio of Blue Cross' medical business increased to 79.2% in 2010 from 74.7% in 2009, mainly due to higher medical claim costs incurred during the year. Given medical insurance is expected to remain as the core business of the company (which represented 73% of the total non-life GPW for 2010), Blue Cross' underwriting profitability remains challenged under the prevailing trend in medical cost inflation and keen pricing competition.
Blue Cross' investment portfolio is mainly comprised of bonds and equities, which accounted for 80% and 17% of its total invested assets, respectively for 2010. This could create potential volatility in the company's investment earnings in light of the heightened downside risk in the recent financial markets, albeit the interest income derived from its bonds portfolio could partially mitigate such volatility over the near term.
The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Understanding BCAR for Property/Casualty Insurers"; "Understanding Universal BCAR"; "Risk Management and the Rating Process for Insurance Companies.", and "Natural Catastrophe Stress Test Methodology." Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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Contacts
A.M. Best Co.
Vivian Cheung
Financial Analyst
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or
Stella Ng
Associate Director
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or
Carole Lovell
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or
Jim Peavy
Assistant Vice President, Public Relations
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