HONG KONG--(BUSINESS WIRE)--A.M. Best has placed under review with negative implications the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of Luen Fung Hang Insurance Company Limited (LFH) (Macau).
These Credit Rating (rating) actions reflect the uncertainty surrounding LFH’s liquidity and the risk that the company will not be able to comply with regulations regarding technical reserves, which could require the company to pledge a material amount of assets by April 2018 to the regulator in order to back part of the ceded reserves arising from Typhoon Hato.
LFH is the second-largest non-life insurer in Macau, with strong operating performance and a five-year average return on equity of 24.3% from 2012 to 2016. The company achieved a net profit in 2017 despite severe gross losses from Typhoon Hato. The majority of the Hato-related losses are ceded to a panel of highly rated reinsurers. Also, the additional technical reserves pressure from this regulation will be short-term in nature, because the majority of the claims from Typhoon Hato are expected to be settled in 2018.
A final decision by the Monetary Authority of Macau on the total amount of technical reserves, and the company’s action plan in response to this decision, is expected to be finalized by mid-April. The ratings will remain under review until A.M. Best completes its evaluation of the impact from the regulator’s final decision, the mitigation plans that LFH’s management put in place and the level of financial support the shareholders provide.
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