HONG KONG--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength of B++ (Good) and the issuer credit rating of “bbb” of Tugu Insurance Company Limited (Tugu) (Hong Kong). The outlook for both ratings is stable.
The rating affirmations reflect Tugu’s strong risk-adjusted capitalization, conservative investment portfolio and initiatives undertaken to improve underwriting stability. Tugu’s risk-adjusted capitalization, as measured by the Best’s Capital Adequacy Ratio (BCAR), remains strong with a relatively low level of net premium leverage and low investment risk profile. The company mainly invests in cash and bonds that provide good liquidity to serve its claims obligations, while its investment portfolio also contributes a stable stream of interest income to net profits. The company has implemented initiatives to reduce underwriting volatility by slowing premium growth in Hong Kong’s employee compensation insurance segment and by diversifying its revenue sources toward overseas business.
Offsetting rating factors include continued unsatisfactory underwriting results, largely due to the loss experience of the general liability business written in Hong Kong and large claims in overseas business. Despite recent efforts by Tugu to reduce writing in the employee compensation segment, outstanding claims are subject to lengthy settlements and potential escalation. As Tugu maintains a small market presence in Hong Kong’s highly competitive general insurance market, improving its underwriting performance and brand recognition in this market remains challenging over the medium term.
Positive rating action may arise if Tugu achieves sustainable improvement in its underwriting performance over a period of years. Negative rating actions may arise if the company’s risk-adjusted capitalization deteriorates materially, for example, due to a large underwriting or investment loss.
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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