HONG KONG--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of China Taiping Insurance (Macau) Co., Ltd. (CTIM) (Macau). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CTIM’s balance sheet strength, which A.M. Best categorizes as adequate, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management. The ratings also reflect the lift the company receives from its parent, China Taiping Insurance Holdings Company Limited (CTIH).
CTIM’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), dropped to the adequate level at year-end 2017 due to significant additional reinsurer credit risk related to reinsurance recoverables from Typhoon Hato – a 1-in-50-year storm that struck in August 2017 – and major losses in the following month from the SJM’s Grand Lisboa Palace fire. Given that the company’s reinsurer panel is highly rated and the vast majority of the typhoon claims are expected to be settled and closed within one year, A.M. Best expects the company’s risk-adjusted capitalization to return to the strongest level within the next two years.
CTIM maintains a leading market position in Macau, with strong operating performance and a five-year average return on equity of 22.3% from 2012 to 2016. The company achieved net profits in 2017 due to investment income, despite the occurrence of two severe underwriting events.
Offsetting rating factors include the uncertainty surrounding CTIM’s liquidity and risks that it will be unable to comply with regulations regarding technical reserves, which could require the company to set aside a material additional amount of assets by April 2018 to back part of the ceded reserves arising from the two events. A.M. Best expects CTIH will provide necessary financial and capital support to CTIM in that case.
Negative rating actions could occur if CTIH does not provide necessary financial support to CTIM in order to comply with the technical reserves regulations. Negative rating actions also could occur if there is a reinsurance dispute or delayed payment on reinsurance receivables, which would lead to liquidity issues for CTIM.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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