HONG KONG--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb+” of Wing Lung Insurance Company Limited (WLI) (Hong Kong). The outlook for both ratings is stable.

The ratings reflect WLI’s initiative in strengthening the quality of its insurance book and improvement in its investment performance in 2009. A.M. Best also acknowledges the potential synergy in terms of distribution support derived from WLI’s immediate banking parent, Wing Lung Bank (WLB), which is part of China Merchant Bank.

To enhance its underwriting profitability, WLI has taken various measures to improve the quality of its insurance book, particularly its employee compensation (EC) business. In addition to terminating unprofitable accounts, WLI has adjusted premium rates and imposed a stricter underwriting approach in pricing its large corporate accounts. Going forward, it is WLI’s policy to capture a better quality business from the bancassurance channel.

WLI’s investment earnings improved in 2009 after suffering large investment losses, partially due to the write-offs from credit-linked instruments in 2008. The company achieved positive net investment earnings of $49 million in 2009, from $–243 million in 2008. To minimize its exposure to equity markets since the financial turmoil, WLI has maintained its holdings in cash and fixed income securities at approximately 98% of its total invested assets in 2009. Going forward, with minimal equity exposure, A.M. Best anticipates that the company will maintain strong liquidity within its invested assets, further reducing the volatility associated with its investment returns.

Offsetting factors include WLI’s marginal level of risk-based capitalization, persistent unprofitable underwriting performance and the requirement to strengthen its claim reserves. The ratings also recognize the prevailing soft market conditions, especially in the EC segment in Hong Kong.

WLI’s underwriting performance has compared unfavorably to that of the industry as a whole since 2004, with an average combined ratio of 98%, compared to the industry average of 86% during 2004 to 2008. Nevertheless, in 2009, the company’s combined ratio improved to 110%, given the improved loss experience of its EC and motor portfolios.

The capital buffer of WLI remained thin, although its risk-based capitalization, as measured by Best’s Capital Adequacy Ratio, improved and is adequate to support the ratings after a loan of HKD 65 million (USD 8.4 million) provided by WLB to strengthen the company’s capitalization in 2009. Prospectively, in view of the potential underwriting volatility, WLI’s rating stability will be subject to its ability to build a cushion within its capitalization to support the risks underwritten.

WLI strengthened its claim reserves in 2009 as a result of higher legal expenses. Nonetheless, WLI has developed a monthly claims monitoring system and plans to further strengthen the actuarial function to ensure the adequacy of its claim reserves.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

A.M. Best Co.
Analysts:
Fion Li, +852-2827-3411
fion.li@ambest.com
or
Terrence Wong, +852-2827-3403
terrence.wong@ambest.com
or
Public Relations:
Rachelle Morrow, +(1) 908 439 2200, ext. 5378
rachelle.morrow@ambest.com
or
Jim Peavy, +(1) 908 439 2200, ext. 5644
james.peavy@ambest.com