HONG KONG--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Sun Hung Kai Properties Insurance Limited (SHKPI) (Hong Kong). The outlook for both ratings is stable.

The rating affirmations are reflective of SHKPI’s profitable operating performance and supportive risk-adjusted capitalization. As a wholly owned subsidiary of Sun Hung Kai Properties Limited, one of the largest property developers and conglomerates in Hong Kong, SHKPI benefits from sharing the parent’s brand name and operating synergies through product distribution. SHKPI maintains a stable market presence in its key portfolio (general liability business) within the local industry.

SHKPI demonstrates a track record of favorable underwriting performance, as evidenced by its five-year average combined ratio of 52% during fiscal years ended June 2006-2010. The company operates under a relatively low cost distribution model that has alleviated the pressure on the upward trend in the loss ratio over the past two years. Overall earnings improved for the first half of fiscal year 2011 ended 31 December 2010, compared to the same period in 2009, due largely to higher investment income.

SHKPI’s risk-adjusted capitalization remains solid with net premium leverage (net premiums written to capital and surplus ratio) of 0.27 times as at fiscal year-end 2010. In view of the company’s improved investment risk profile, A.M. Best anticipates that SHKPI’s risk-adjusted capital position is likely to remain solid over the near term, although its expected surplus growth will remain modest in view of its dividend payout practice (five-year average dividend payout ratio of 77%).

Offsetting rating factors are the anticipated slowdown in SHKPI’s employees’ compensation business from the group and its affiliates, along with potential volatility in investment earnings resulting from revaluation of property investments. Given that revaluation gains on property investments has been a major contributor of SHKPI’s total investment income, potential negative deviations from the current value of such investments could lead to an unfavorable impact on investment earnings going forward.

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”; 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.

Copyright © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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