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 China Taiping Insurance (HK) Company Limited [CTPI(HK)] (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CTPI(HK)’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. It also incorporates the rating enhancement that CTPI(HK) receives from its parent, China Taiping Insurance Holdings Company Limited (CTIH).
CTPI(HK)’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), remained at the strongest level, which is supported by organic profits accumulation after regular dividend payouts to its parent group. The company’s investment portfolio consists mostly of income-generating assets including real estate, bond and fixed-rate fund investments. In 2020, the company recognised sizable impairment losses related to an unlisted fund investment in view of its worsened credit profile. Coupled with the moderate-to-high level of concentration risk from this issuer (approximately 40% of its capital and surplus as of year-end 2019), the company’s capital is exposed to potential erosion, which is an offsetting rating factor to its balance sheet strength assessment. Nonetheless, the company has maintained sufficient liquidity and an adequate buffer in its risk-adjusted capitalisation, which, AM Best believes, is able to support its risk profile over the short to intermediate term.
CTPI(HK) has demonstrated a track record of positive underwriting results over the past five years, despite thin profit margins. Income generating assets have contributed to a stable and favourable investment performance. In 2019, its return on equity declined to 2.1% from 6.1%, partially attributed to the impairment loss on a private bond. Moreover, the impairment on the aforementioned unlisted fund in 2020 insofar also is expected to exert pressure on the full-year result. Going forward, AM Best expects the company’s operating performance to remain highly dependent on its investment results, while underwriting profitability can be maintained at a stable yet low level.
CTPI(HK) ranked third in Hong Kong’s non-life insurance market based on gross premium written in 2019, and remained a top player in key business lines including motor, property, general liability and marine insurance. The accident and health line of business has grown fast over the past three years. Going forward, the company expects to strengthen health business and reduce its reliance on inward motor treaty to achieve a diversified underwriting book.
As a key overseas subsidiary, CTPI(HK) receives implicit support from the group in areas of capital, reinsurance, investment, and is well-integrated into the group’s management and operations. Over the intermediate term, AM Best believes CTPI(HK) remains strategically important to the group in executing its internationalisation strategy.
Negative rating actions could occur if there is a change in the credit profiles of CTIH and/or China Taiping Insurance Group Ltd. (TPG).
Negative rating actions could arise from a reduced level of support from CTIH and/or TPG or a reduction in the strategic importance and integration to CTIH and/or TPG.
Negative rating actions may arise if there is a material decline in CTPI(HK)’s risk-adjusted capitalisation and/or in absolute capital size, or if there is a sustained deterioration in its operating performance.
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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