HONG KONG--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb+” of Hyundai Insurance (China) Co., Ltd. (HIC) (China). The outlook for both ratings is positive.
The ratings reflect HIC’s adequate risk-adjusted capitalization, diversified underwriting portfolio and the excellent liquidity of its investment portfolio. Furthermore, the ratings factor in the support HIC receives from its parent, Hyundai Marine and Fire Insurance Co. Ltd, in the form of an experienced management team in underwriting, claims and reinsurance.
HIC’s absolute capitalization as of June 2011 stood at RMB 233 million, and its risk-adjusted capitalization is expected to remain strong as the net premium leverage (net premiums written over capital) is expected to stay below 0.5 times over the next three years.
HIC has a diversified business portfolio, of which commercial property and engineering accounted for 47% of the total gross premium income for the six-month period ending June 30, 2011. Other major lines of business include marine (29%), motor (13%) and liability (10%). HIC has maintained multiple sources of premiums through direct sales, agents and broker channels. While the company has maintained its existing relationship with the Korean customer network, it continues to penetrate into the Chinese customer base through the inward reinsurance business. In addition, the new branch in Shandong is expected to contribute to top line growth starting in 2012.
HIC is committed to maintaining an excellent liquidity position through a conservative investment strategy in the near term. The investment portfolio is predominately composed of cash and term deposits (99% of its invested assets). This conservative investment strategy translates into higher financial flexibility with a consistent level of investment income, particularly during volatile financial markets.
These positive rating factors are offset by potential volatility in HIC’s underwriting performance due to high catastrophe risk retention relative to its absolute capital base, and an underwriting loss due to the high expense ratio during its start-up phase, although the expense ratio is expected to improve further as business scale grows over the medium term.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Understanding Universal BCAR”; “Catastrophe Analysis in A.M. Best Ratings”; “Assessing Country Risk”; “Rating New Company Formations”; “Risk Management and the Rating Process for Insurance Companies”; and “Rating Members of Insurance Groups.” Methodologies can be found at www.ambest.com/ratings/methodology.
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