SINGAPORE--(BUSINESS WIRE)--AM Best has assigned a Financial Strength Rating of B++ (Good) and a Long-Term Issuer Credit Rating of “bbb” to Post-Telecommunication Joint Stock Insurance Corporation (PTI) (Vietnam). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect PTI’s balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM). AM Best notes that PTI benefits from various forms of support from its largest single shareholder, DB Insurance Co., Ltd. (DB Insurance).
PTI’s balance sheet strength assessment is underpinned by its risk-adjusted capitalization that is projected to be at least at the very strong level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). PTI’s risk-adjusted capitalization benefits from moderate underwriting leverage and a reinsurance program of good credit quality. AM Best views the company’s investment portfolio to be of moderate risk, characterized by exposures to investments in subsidiaries, affiliates, equities and unrated bonds, notwithstanding that the majority of these are allocated to term deposits. Favorable balance sheet considerations include prudent liquidity management, which benefits from a liquid asset mix, low debt leverage and pre-arranged credit facilities to support working capital needs. Offsetting balance sheet factors include a recent decline in risk-adjusted capitalization, as the growth of capital and surplus has been constrained by lower income and a moderate dividend payout ratio, while capital requirements increased due to business growth.
AM Best views the company’s operating performance as adequate, as evidenced by a five-year average return-on-equity ratio of 7.3% (2014-2018). The company has maintained consistent underwriting profitability on the back of an increasing market share despite competitive market conditions in Vietnam, reflecting the company’s prudent underwriting, risk selection and claims control. AM Best expects prospective underwriting performance to remain adequate, driven mainly by the company’s ability to control its performance in these lines. While overall earnings remain supported by investment returns mainly from interest income on term deposits, investment income has shown some volatility historically as a result of fair value movements in equity. In 2018, the company recorded sizeable losses on its equity portfolio leading to overall income and profitability ratios dropping to the lowest level in the past five years. Nonetheless, prospective investment income should stabilize with the expectation toward portfolio de-risking.
AM Best assesses PTI’s business profile as neutral. The company is ranked third among non-life insurers in Vietnam by market share in 2018 and through September 2019, supported by sustained strong business growth over recent years. Distribution channels are diversified, and AM Best views a comprehensive sales and customer network, arising from its shareholder, Vietnam Post Corporation, as a further benefit to its business profile. The competitive advantage gained through a focus on service quality, valued-added services, and partnerships with motor workshops and hospitals has strengthened the company’s market position in its two largest lines of businesses, motor and health care insurance.
AM Best considers the company’s ERM framework as appropriate given the size and complexity of its operations, supported by well-documented policies and procedures, underwriting and investment guidelines and a clear governance structure. Risk management capabilities are viewed typically as appropriate relative to the profile of its key risks, and are expected to be augmented further, prospectively by knowledge transfer from strategic shareholder, DB Insurance.
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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