HONG KONG--(BUSINESS WIRE)--A.M. Best Asia-Pacific Limited has upgraded the financial strength rating to A- (Excellent) from B++ (Good) and issuer credit rating to “a-” from “bbb+” of Wing Lung Insurance Company Limited (WLI). The outlook for both ratings has been revised to stable from positive.
The rating upgrades reflect WLI’s improved underwriting performance and the organic growth in its capital and surplus over the past four years.
WLI’s capital and surplus strengthened to HKD 609 million as at year-end 2012 from HKD 381 million as at year-end 2009 through the continuous accumulation of favorable net income during that period. In 2012, operating income mainly increased due to higher underwriting income achieved during the year. The company’s risk-adjusted capitalization has shown strong improvement during this period as well.
WLI’s underwriting performance continued to improve in 2012, driven by both the lower loss ratio and the improvement in the expense ratio. The company will continue to benefit from this lower cost structure, which is sustainable with the rapid growth in the low cost bancassurance channel established under the support of its immediate parent, Wing Lung Bank Limited. The medium-term outlook on the loss ratio is positive as WLI has undertaken several large scale reserve strengthening exercises and adopted a more conservative approach for reserving recent year claims cases.
Offsetting rating factors include a modest increase in investment risk and the competitive environment within WLI’s key business segment. The company’s underwriting portfolio is highly concentrated in general liability, which is highly competitive in Hong Kong.
Due to the low interest rate environment, WLI has gradually increased its investment in properties since 2010 and in the bond market since 2012. As much of the new bonds purchased are in the property sector as well, the investment concentration on the property market has increased in the last three years.
Key rating factors that may lead to negative rating actions include a sudden decline in WLI’s risk-adjusted capitalization due to a large investment loss or a deteriorating trend in its major general liability business. Positive rating actions are unlikely in the short to medium term.
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. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.
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