A.M. Best Affirms Ratings of Blue Cross (Asia-Pacific) Insurance Limited

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.

“A.M. Best’s Ratings & the Treatment of Debt”

The ratings reflect Blue Cross’ strong risk-adjusted capitalization, improved investment performance in 2009 as a result of the rebound in the financial markets, and consistent market position as one of the top five insurers in the local medical insurance sector.

Blue Cross’ risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), improved in 2009 compared to 2008. In addition to a capital injection of HKD 450 million, full retention of the net earnings and a significant increase in the fair value of investment reserves also contributed to the company’s enhanced capitalization. The adjusted capital and surplus increased to HKD 719 million at year-end 2009, translating into a growth of 61.8% from 2008. Blue Cross’ risk-adjusted capitalization is anticipated to remain solid, supporting its business growth over the near to mid term.

In 2009, the company’s investment performance rebounded from the financial crisis, recording an investment yield (excluding unrealized gains/losses) of 4.2% (a negative yield of 0.8% in 2008), and averaged 3.5% during the past five years. Furthermore, Blue Cross continued to maintain strong liquidity through a conservative investment portfolio, which was largely (more than 85% of the total invested assets in 2009) made up of cash and bonds.

Blue Cross provides various general insurance products and has been one of the dominant insurers (by gross premiums written) in the medical sector of the local market. The company is the fifth-largest insurer in this designated segment, with a market share of 8.1 % for 2009.

These rating factors are somewhat mitigated by the company’s unfavorable underwriting profitability in the medical business coupled with challenges in potential growth in this designated segment.

In light of unfavorable loss experience in Blue Cross’ group medical book (which represented 80% of its total medical portfolio by gross premiums for 2009), the loss ratio increased to 80.8% from 74.2% in 2008. With a premium growth of 5.8%, the underwriting margin of the group medical portfolio decreased to 7.9% (13.3% for 2008). Overall, the company’s non-life portfolio’s underwriting profitability weakened, and the combined ratio trended upward for 2009. In relation to the run-off life portfolio, the ratio of claims and benefits paid to net premiums written increased moderately in 2009 and is expected to further increase due to the maturity of endowment products going forward.

Given the intensifying competition within the local medical sector, Blue Cross will continue to face challenges to maintain or strengthen its market share with improvement in the underwriting performance in this chosen market prospectively.

The affirmation of the ratings for Blue Cross is based on A.M. Best’s review of the financial statement of the company’s parent, The Bank of East Asia Limited, as well as other available public information, including public credit ratings.

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”; “A.M. Best’s Ratings & the Treatment of Debt”; and “Rating Banks.” Methodologies 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.