SINGAPORE--(BUSINESS WIRE)--AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” of EQ Insurance Company Limited (EQI) (Singapore). The outlook of the FSR remains stable.
These Credit Ratings (ratings) reflect EQI’s balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). These ratings also factor in a neutral holding company impact from EQI’s 100% ultimate ownership by Citystate Capital Asia Pte. Ltd.
The revision of the Long-Term ICR outlook to negative reflects AM Best’s expectation of pressure on the company’s operating performance assessment over the near term. While the company continues to execute on improvements aimed at returning underwriting performance to a position of profitability, the competitive conditions in Singapore’s insurance market remain a key challenge.
EQI’s balance sheet strength assessment is underpinned by risk-adjusted capitalization that remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Despite the company exhibiting limited internal capital generation over the past five years (2014-2018), shareholders’ equity has been supported by a series of capital injections from the company’s parent over this period. Other balance sheet considerations include the company’s modest-sized absolute capital base and typically conservative investment strategy.
Operating performance over the past three years (2016-2018) has been hampered by underwriting losses, albeit partially offset by positive investment results. The company has reported a five-year average combined ratio of 106.9%, reflecting a combination of volatile loss ratios and elevated expense ratios over this period (2014-2018). In response, EQI is expected to rebalance its underwriting portfolio and strengthen its risk selection process over the near term, in order to support an improvement in prospective loss experience, and seek to rationalize its cost base to lower its expense ratio. Despite these management actions, AM Best expects persistent competitive conditions in Singapore’s insurance market to remain a key challenge to the company achieving technical profitability over the near term.
AM Best views EQI’s business profile as limited. The company is a small-sized non-life insurer in Singapore, with a market share of approximately 1% based on 2018 gross written premium. The company’s business portfolio continues to exhibit line of business and geographical concentration.
AM Best considers EQI’s ERM framework to be appropriate given the size and complexity of its operations, as well as the company’s risk management capabilities being viewed as typically appropriate relative to the profile of its key risks.
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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