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 BOCOM Insurance Company Limited (CBIC) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CBIC’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 wide range of support that the company receives from the Bank of Communications Co., Ltd. (BOCOM), including capital support, brand recognition, distribution, investment, operational and risk management.
CBIC’s balance sheet strength mainly reflects its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Notwithstanding, investment risk remains a major component of the BCAR-required capital as the company is exposed to some unlisted investments, which generally entail lower liquidity and transparency, as well as concentration risk in a private equity fund investment. Another partially offsetting factor is CBIC’s moderately high level of reinsurance dependency, which is partly mitigated by its prudent reinsurance arrangements and the sound credit profile of its diversified reinsurance panel.
AM Best considers the company’s operating performance as adequate. The company has achieved double-digit growth in its gross premiums written and net premiums earned over the past five years (2018 to 2022). CBIC’s five-year average operating ratio has remained below 90%, mainly due to its stable investment income. CBIC has maintained a lower-than-market loss ratio as a result of a prudent underwriting strategy and guidelines, although its operating expense ratio remains high due to its small net premium base and elevated staff and compliance costs.
AM Best assesses CBIC’s business profile as limited. The company maintains a modest presence in Hong Kong’s highly fragmented general insurance market. The company’s underwriting portfolio remains diversified and in terms of net premiums written, the company’s largest line of business is property damage, followed by accident and health, employees’ compensation and pecuniary loss. CBIC has a diversified distribution network including bancassurance, brokers, agencies and inward facultative. The company is the sole general insurance arm of BOCOM group and receives distribution support from BOCOM’s extensive banking network.
Although CBIC’s current ratings are well-placed, negative rating actions could occur if there is a substantial decline in its overall balance sheet strength, for example, due to heightened exposure to higher-risk investments; or notably weaker support from its ultimate parent, BOCOM; or if BOCOM’s credit fundamentals deteriorate materially. Positive rating actions are probable if the company achieves prolonged improvement in its operating performance that are superior to market peers.
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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