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 CMB Wing Lung Insurance Company Limited (CMBWLI) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CMBWLI’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, neutral business profile and marginal enterprise risk management (ERM).
CMBWLI’s very strong balance sheet strength assessment is underpinned by its robust level of risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s capital base continued to grow organically in 2019, supported by the company’s positive operating results and full profit retention. CMBWLI repaid the subordinated loan issued by its parent company, CMB Wing Lung Bank Limited, in 2019, and the company’s solvency level remained at a healthy level as of year-end 2019. The company continued to maintain a conservative investment strategy in 2019 after its de-risking exercise in 2018, with its investment portfolio mainly consisting of low-risk assets, including cash and bonds. However, a considerable amount of the bond holdings continues to be non-rated bonds.
CMBWLI has a track record of profitable operating performance, with double-digit return on equity in the past years. Despite an operating loss in 2018 due to its investment losses from the de-risking exercise, as well as a bond default, the company recorded an after tax operating profit of HKD 118 million (USD 15 million) in 2019.
The company’s underwriting portfolio continues to be profitable, while supported by a stable stream of investment income including interest, dividend and rental income. Notwithstanding, CMBWLI’s investment performance was impacted negatively by the bond impairment in 2018. The company took a more conservative view on the recovery of the bond default and recognised a full impairment in 2019.
CMBWLI is a medium-sized non-life insurer in Hong Kong with over 30 years of operating history and was ranked 25th in Hong Kong’s non-life insurance market in 2019 in term of gross premium written. The company’s underwriting portfolio remains relatively stable but is skewed towards the general liability line and remains focused on Hong Kong. CMBWLI continues to utilise its parent’s and affiliated bank’s distribution networks, as well as the digital channel to distribute personal line products in order to achieve a more diversified underwriting portfolio.
AM Best continues to view CMBWLI’s risk management framework as evolving, and considers the company’s adoption and enhancement of its new ERM framework to be a work in progress. The company formulated the first draft of its risk appetite statement in 2019 with the risk tolerance levels defined for individual key risks. Investment policies also are in place to monitor and control the company’s exposure to investment risk. Going forward, AM Best expects the company’s risk management framework to become more developed and better aligned with industry best practices, partially driven by regulatory initiatives to strengthen risk oversight and reporting.
Positive rating actions could occur if CMBWLI continues to demonstrate improvement in enterprise-wide risk management, while maintaining robust risk-adjusted capitalisation and a favourable operating performance. Negative rating actions could occur if the company’s risk-adjusted capitalisation deteriorates materially due to adverse underwriting results or investment losses, or if the company’s business profile notably weakens.
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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