HONG KONG--()--A.M. Best Co. has assigned a financial strength rating of A (Excellent) and an issuer credit rating of “a” to China Taiping Insurance (HK) Company Limited (CTPIHK) (Hong Kong). The outlook for both ratings is stable.
The ratings recognize CTPIHK’s excellent risk-adjusted capitalization and its well-established market profile in the Hong Kong general insurance market as the tenth-largest general insurer in Hong Kong by gross premium written. The ratings also consider the company’s strategic role as a key overseas operating entity within China Taiping Insurance Group Co. and the benefits derived from the brand recognition and access to the group’s investment management and reinsurance capabilities.
CTPIHK’s robust capital and surplus of HKD 3.2 billion (as of year-end December 2011) provides solid support to its underwriting and asset risk exposures, while it is expected to maintain a conservative level of net underwriting leverage despite an accelerated business growth anticipated over the next two to three years. The company’s capitalization is protected by a comprehensive reinsurance program, while its ample asset base provides adequate liquidity in supporting its relatively long-tail insurance liabilities.
CTPIHK maintained a stable market share in the mid-tier segment with extensive local knowledge and management expertise. The company distributes a diversified mix of products through a strong distribution network with brokers and agents, as well as through its solid relationships with key local and mainland conglomerates and enterprises over the years.
Partially offsetting these positive factors include the potential capital drag from the holding company and/or its affiliates, and the historical volatility in underwriting earnings.
CTPIHK had issued two one-year loans with renewable terms totaling HKD 550 million to China Taiping Insurance Holdings Company Limited (CTIH, the intermediate holding company) in 2011, in addition to the two dividend payouts totaling HKD 2.2 billion made in 2010 and 2011 to CTIH. A.M. Best is concerned that the ongoing solvency pressure of its key insurance affiliates (namely Taiping Life Insurance Company Limited and Taiping General Insurance Company Limited) could impose potential capital pressure on CTPIHK.
Over the past five years, CTPIHK had demonstrated some volatility in underwriting earnings mainly due to underwriting losses experienced in employees’ compensation (EC) and motor business. Notwithstanding, the company’s diversification to favorable lines of business had partially mitigated the unfavorable performance of its key EC and motor business, while the company is committed to strengthening its risk selection capability and expense control to improve its underwriting margin going forward.
While positive rating action is unlikely in the near term, negative rating actions could occur if CTPIHK exhibits unfavorable operating profitability trends, a material dividend payout to CTIH and/or a significant deterioration in risk-adjusted capitalization.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Additional key criteria utilized include: “Understanding Universal BCAR; “Catastrophe Analysis in A.M. Best Ratings”; “Insurance Holding Company and Debt Ratings”; and “Risk Management and the Rating Process for Insurance Companies.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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