HONG KONG--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Hong Leong Insurance (Asia) Limited (HLIA) (Hong Kong). The outlook for both ratings is stable.
The rating affirmations reflect HLIA’s strong risk-adjusted capitalization, consistently favorable operating performance and sound liquidity. HLIA’s capital and surplus has registered healthy growth in the five-year period from 2010 to 2014, primarily driven by its profitable underwriting performance. Management initiatives to enhance the cost efficiency of its business platform have improved the expense ratio. The ratings of HLIA also recognize its unique business feature of acquiring business through the direct distribution channel, with a focus on short-tail business consistently accounting for approximately two-thirds of the company’s insurance book over the past five years.
Partially offsetting these positive rating factors is HLIA’s exposure to investment risks. HLIA has maintained a modest five-year average investment yield due to volatility in capital gains/losses over the past five years, which was largely driven by the company’s dynamic investment strategy.
Other offsetting factors are competitive market conditions in Hong Kong and HLIA’s relatively high expense ratio. Acquisition of market share remains a challenge for HLIA and the effectiveness of the enhanced business platform will be proven over the medium term.
Factors leading to positive rating actions include continuing improvement in HLIA’s risk-management strategy to mitigate its investment volatility and cost-efficiency management. Alternatively, a declining trend in the company’s Best Capital Adequacy Ratio due to substantial investment losses could result in negative rating action.
The methodology used in determining these interactive 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.
Key insurance criteria reports utilized:
- Catastrophe Analysis in A.M. Best Ratings
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
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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