HONG KONG--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of China Merchants Insurance Company Limited (CMI) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CMI’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect the parental support from China Merchants Group Limited (CMG).
CMI’s risk-adjusted capitalization remained sound in 2018, as a combined result of a capital injection totaling HKD 207 million from its parent, CMG, in 2016, and the continued low asset risk exposure and low underwriting leverage, as well as full profit retention over the past few years.
CMI has delivered positive operating results consistently over the past five years, largely attributed to the improving stream of interest income in tandem with increasing bond investments. The better-than-average loss experience remains a supporting factor to the underwriting results, despite being offset by the higher-than-average, albeit gradually improving expense ratio. CMI maintains a diversified yet small underwriting portfolio in Hong Kong’s non-life market, with the majority of premiums sourced from personal-line products. Marine business was a main driver of premium growth in 2018, and this trend is expected to continue over the short to intermediate term, aligning with CMI’s strategy to diversify its book of business further by expanding commercial lines. Underwriting volatility arising from commercial lines is mitigated by a prudent reinsurance strategy.
Offsetting rating factors include a lack of economic scale due to its small premium base amid the highly competitive and fragmented operating environment in Hong Kong’s non-life segment. Execution risk in its business transformation plan also may give rise to uncertainties such as volatility in claims experience.
While positive rating actions are not likely over the short to intermediate term, negative rating actions could occur if the company experiences a material deterioration in its risk-adjusted capitalization or if there is a material deteriorating trend in its operating profitability.
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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