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 The People's Insurance Company of China (Hong Kong), Limited (PICC HK) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect PICC HK’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). The ratings also reflect the lift that the company receives from its parent, The People’s Insurance Company (Group) of China Limited (PICC Group), as well as its affiliates.
The balance sheet strength of the company is supported by its risk-adjusted capitalisation being at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR). The company’s share capital of HKD 640 million (USD 82 million) was strengthened by an HKD 140 million (USD 18 million) capital conversion from retained profits and general reserves in 2019. PICC HK was owned 75% and 25% by PICC Group and Asia Insurance (Investments), Limited, respectively, as of year-end 2019. The company expanded its investment in equities in 2019 to enhance yields, although the majority of its assets remain allocated to investment-grade bonds and cash and cash equivalents.
PICC HK reported an after-tax net loss of HKD 9.4 million in 2019. The company’s loss ratio has been increasing since 2016, partially owing to claims related to Typhoon Hato in 2017 and Typhoon Mangkhut in 2018. Moreover, in 2019, its loss ratio peaked at 68.9%, mainly due to the unfavourable claims experience in the domestic construction employees’ compensation (EC) line. Nonetheless, stable and favourable investment returns generated by a liquid investment portfolio have partially offset underwriting losses over the past five years.
PICC HK remains a small property/casualty insurer in Hong Kong’s highly competitive commercial lines market. The company’s gross and net premium written dropped by 3.1% and 5.9% in 2019, respectively, as a result of its shift in underwriting strategy during the year. The company stopped underwriting its loss-making construction EC business and expanded its third-party inward reinsurance book of business, which was driven by overseas infrastructure projects under China’s Belt and Road initiatives.
As the sole overseas insurance subsidiary within the PICC Group, PICC HK plays a strategic role in supporting the execution of the group's overseas development strategies. The company received business support from PICC Property and Casualty Company Limited via 1) an affiliated inward reinsurance business that has contributed to a stable stream of premiums over the past five years; 2) referral of third-party inward reinsurance business that is expected to be the main growth driver going forward.
Negative rating actions could occur if PICC HK’s operating performance continues to deteriorate such that it no longer supports the current assessment at the adequate level, or the company's ERM fails to contain emerging risks from the evolution of its business profile.
Negative rating actions could occur if PICC Group and its affiliates reduce the level of support to PICC HK, or if there is a deterioration in the group's credit profile.
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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