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 Blue Cross (Asia-Pacific) Insurance Limited (Blue Cross) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Blue Cross’ balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
Blue Cross’ very strong level of balance sheet strength assessment is underpinned by its robust level of risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR). As of year-end 2019, the company’s investment portfolio mainly consisted of high quality bonds and cash and cash equivalents. The company took an active approach in de-risking its investment exposure by lowering equity investments in light of the volatile capital market conditions. Notwithstanding, AM Best expects that the company will gradually increase its equity investments over the next few years to align with the neutral position set out in its investment plan. Going forward, AM Best expects the company’s risk-adjusted capitalisation to remain at a robust level, supported by the gradual release of risk capital in tandem with the run-off of its life business and organic capital growth with those earnings offset by a high dividend payout ratio.
Blue Cross’ favourable operating performance continues to be supported by both positive underwriting and investment results. The company’s non-life net combined ratio improved by 2% to 94.3% in 2019, mainly driven by better claims experience in the group medical business, while the expense ratio remains stable compared to the previous year. Blue Cross’ investment performance continues to be supported by a stable stream of interest and dividend income and the company recorded a realised capital gain of HKD 34 million from the sale of securities. As a combined result, the return-on-equity was 13.8% in 2019.
Blue Cross is a well-established mid-sized general insurance company focused on health insurance in Hong Kong. The company continues to rank 12th in Hong Kong’s non-life market and fourth in the accident and health segment, in terms of gross premium written. The company consistently utilises a moderately diversified distribution network while it continually augments its electronic platforms to enhance operational efficiency and promote cross-selling opportunities for its insurance products.
Although Blue Cross is well-positioned at its current rating level, negative rating actions could occur if there is a material deterioration in the company’s risk-adjusted capitalisation or if the company’s operating profitability declines materially.
On 4 March 2020, the company’s parent, The Bank of East Asia, Limited (BEA), announced that it was in the midst of conducting a comprehensive strategic review on its portfolio of businesses and assets. The bank will announce an update on the status of the review by 30 September 2020. Based on currently available public information, AM Best assumes for this rating assessment that there is no change in Blue Cross’ shareholding structure. However, the announcement of any potential change in Blue Cross’ shareholding structure following BEA’s strategic review may result in positive or negative implications to the company’s business and credit fundamentals, which could trigger a rating action.
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