HONG KONG--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of China Merchants Insurance Company Limited (CMI) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CMI’s balance sheet strength, which AM Best assesses 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 China Merchants Group Limited (CMG), including capital support, brand recognition, investment management and risk oversight.
CMI’s very strong balance sheet strength assessment is underpinned by its robust level of risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s capital continues to grow organically in 2020 through full retention of operating profits. The company’s investment strategy remains conservative in 2020, with majority of the investment assets in cash and bonds. Notwithstanding, the level of exposure in non-investment grade and non-rated bond in the company’s investment portfolio remains moderate, and AM Best expects the company will continue to increase the proportion of investment grade bonds in the future to enhance the overall credit quality gradually of its bond portfolio.
CMI’s operating results remained positive in 2020, with a profit after tax of HKD 13 million (USD 1.7 million). The company’s net combined ratio continued to improve in 2020, mainly contributed by an improvement in the company’s net commission ratio, whilst partially offset by a deterioration in the net loss ratio and gradual increasing trend in the management expense ratio. A growing stream of interest income over the past five years also contributed to the company’s positive and stable investment results, despite yields remained low.
CMI maintained a stable-yet-small market presence in Hong Kong’s non-life insurance market, with a market share of 0.38% in 2020, in terms of gross premium written (GPW). The company’s underwriting portfolio remains diversified, with major lines of business in liability, marine, property, accident and motor. Notwithstanding, the company’s product mix slightly shifted in 2020, mainly attributed to a decrease in the GPW in the accident line, whilst other lines of business continue to grow in 2020. Going forward, CMI expects marine, property and liability businesses will continue to be the growth driver for the company, whilst the GPW in accident line is expected to rebound as travel restrictions relax in the future years.
Although CMI is well-positioned at its current rating level, negative rating actions could occur if the company experiences a material deterioration in the company’s risk-adjusted capitalisation or its operating profitability due to sustained adverse experience in underwriting or investment results. A deterioration in the credit profile of the ultimate parent company, CMG, also may impose a negative impact on CMI’s ratings.
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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