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 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 categorizes 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 as a wholly owned subsidiary of the Bank of Communications Co., Ltd. (BOCOM), a large state-owned banking group in China, and CBIC’s strategic importance to the group.
CBIC’s risk-adjusted capitalization remained at the strongest level in 2018, as measured by Best’s Capital Adequacy Ratio (BCAR), and is supported by low underwriting leverage and a prudent reinsurance program. The company has generated net operating profits consistently over the past five years, which contributed to its capital growth through full profit retention and helped mitigate capital volatility arising from changes in the market value of its investment assets. CBIC maintains a diversified but small underwriting portfolio in Hong Kong’s non-life market, and receives extensive business development and distribution support from BOCOM’s banking network in Hong Kong, mainland China and overseas. Favorable investment income has been the primary contributor to the company’s operating income. Despite its prudent underwriting strategy and better-than-average loss experiences, CBIC’s underwriting performance has remained marginal due to its high expense structure, which is due primarily to a small net premium base and the lack of economic scale. The company also receives support from BOCOM in terms of brand recognition, investment, risk management, operations and capital support.
Offsetting rating factors include CBIC’s investment risk exposure, as a material and increasing portion of its investment portfolio are invested in relatively high-risk assets with less transparency and elevated liquidity and credit risks. The company also has a high reinsurance dependence, although this is mitigated by a high-quality reinsurer panel. In addition, CBIC is exposed to regulatory risk, as upcoming implementations of various compliance requirements are increasing pressure on the company’s operating expenses, in addition to existing competitive pressure from the soft general insurance market conditions in Hong Kong.
While positive rating actions are unlikely to occur over the near term, negative rating actions could occur if there is a substantial decline in CBIC’s risk-adjusted capitalization, a material deterioration in its operating performance, or if support from BOCOM weakens notably.
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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