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 Dah Sing Insurance Company (1976) Limited (DSI) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect DSI’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.
The ratings also reflect the parental support from Dah Sing Financial Holdings Limited (DSFH) in terms of capital, brand recognition, business development, product distribution, risk management and operations.
AM Best expects DSI’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), to remain at the strongest level and supportive of the anticipated increases in asset and underwriting risks from business expansion over the short to intermediate term. Given its low net underwriting leverage ratio of approximately 54% and limited catastrophe exposure, DSI’s BCAR score is relatively stable in stressed scenarios. Following a large capital injection from DSFH in 2017, DSI has significantly expanded its investment portfolio over the past three years. The heightened investment risk is partially mitigated by the various constraints in investment policy and the diversity in its equity portfolio. Moreover, the company adopts an active and dynamic hedging strategy to mitigate short-term market risk. Other supportive factors to the balance sheet strength include organic capital growth from full profit retention and strong liquidity.
DSI has consistently delivered a profitable operating performance over the past five years, mainly driven by its favourable investment results, albeit partially offset by the relatively marginal and volatile underwriting performance.
As a small to medium-sized player in Hong Kong’s non-life insurance segment, DSI maintained a market share of approximately 1%, with a gross written premium of HKD 557.5 million (USD 71.6 million) in 2019. Going forward, the company intends to diversify its underwriting portfolio by expanding its inward reinsurance business, in particular in the casualty and financial lines, as well as direct business in the individual accident and health segment.
Offsetting rating factors include its high proportion of equity investments, which may generate volatility for the company’s capital and earnings. Other factors include the competitive operating environment and additional pressure on the company’s underwriting margin due to its increasing acquisition expenses.
While the company is well-positioned at its current rating levels, negative rating actions could occur if there is a material deterioration in the company’s risk-adjusted capitalisation or absolute size of capital and surplus, or a sustained unfavourable trend in operating performance. Negative rating actions are also possible if DSFH’s credit profile deteriorates materially, or if DSFH reduces the level of support it provides to DSI.
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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