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 Sun Hung Kai Properties Insurance Limited (SHKPI) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
SHKPI is a wholly owned subsidiary of Sun Hung Kai Properties Limited (SHKP), one of the largest and most well-established property development and investment conglomerates in Hong Kong.
The ratings reflect SHKPI’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
The balance sheet strength assessment mainly reflects SHKPI’s low business net retention and moderate underwriting leverage. In addition, the company’s underwriting operations have been highly profitable and cash-generative. However, SHKPI’s investment portfolio shows an appetite to invest in higher-risk assets, which exposes its overall earnings to considerable market and credit risks. These risks are mitigated partially by the company’s significant level of excess capital.
Despite the soft market in Hong Kong in recent years, SHKPI has continued to generate strong and consistent operating profits, supported mainly by the company’s low acquisition cost structure, as well as by a steady stream of interest and dividend income. As a wholly owned subsidiary of SHKP, SHKPI underwrites insurance business associated with SHKP-related construction projects on a direct basis, which makes its acquisition cost ratio generally lower than its peers. Additionally, SHKPI’s investment portfolio is managed by SHKP’s investment arm, which has a long track record of delivering positive returns over different phases of the investment cycle.
SHKPI is a medium-sized non-life insurer in Hong Kong. The company mainly underwrites employee compensation (EC) business that is associated with group-related construction projects. Approximately 70% of SHKPI’s premiums are sourced from in-house business, related joint ventures and associated and subsidiary companies of SHKP. The book of business sourced from SHKP and its related entities has provided SHKPI a stable presence in Hong Kong’s non-life insurance market, particularly in the EC segment.
Given SHKPI’s scope of operations and investment allocation, its risk profile shows high investment risk. Nevertheless, A.M. Best considers SHKPI’s risk management capabilities to be aligned appropriately with its risk profile. This is due primarily to the company’s strong focus on profitable underwriting, low business net retention and the business and investment management support it receives from SHKP.
Positive rating actions are unlikely in the near term. Negative rating actions could occur if the company experiences material and continual deterioration in its risk-adjusted capitalization, or exhibits an unfavorable trend in operating performance.
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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