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 Sun Hung Kai Properties Insurance Limited (SHKPI) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect SHKPI’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
SHKPI’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). As the company’s investment portfolio consists of higher risk assets including non-investment grade bonds and unlisted equities, SHKPI’s risk-adjusted capitalisation is exposed to considerable market and credit risks. However, AM Best considers the company’s capital buffers sufficient to absorb the risks associated with those investments. In addition, the company’s balance sheet strength also benefits from good quality of capital, strong liquidity and a well-diversified reinsurance panel that comprises reinsurers with good financial standing.
SHKPI’s operating performance has been consistently strong over the past five years, supported by a five-year average return on equity of 18% (2016-2020), driven mainly by positive investment income and strong underwriting results. Although the company experienced some contraction in written premium during the fiscal year ended 30 June 2020, underwriting results remained strong with an average five-year combined ratio of 69% (2016-2020). The company’s retained loss experience has limited volatility due to its low retention and good quality of reinsurance programme.
SHKPI is a wholly owned subsidiary of Sun Hung Kai Properties Limited (SHKP), one of the largest property development and investment conglomerates in Hong Kong. SHKPI maintains a small albeit profitable presence in Hong Kong’s general insurance market focusing on employees’ compensation insurance. As a member of the SHKP group, SHKPI benefits from opportunities to underwrite large volumes of business directly from its group and related parties, which allows it to maintain a low acquisition cost structure.
The stable outlooks reflect AM Best’s expectation that SHKPI will maintain its strong operating performance, supported by a continued profitable underwriting portfolio, low acquisition cost structure and positive investment returns. Negative rating actions could occur if there is significant deterioration in SHKPI’s risk-adjusted capitalisation or 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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