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 The People's Insurance Company of China (Hong Kong), Limited (PICC HK) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect PICC HK’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 strategic importance of the company to its parent, The People’s Insurance Company (Group) of China Limited (PICC Group) (China), as the sole overseas insurance entity and a key component of PICC Group’s overseas strategies.
PICC HK remains a relatively small player in the Hong Kong general insurance market. After the recent capital injection of HKD 970 million (USD 125 million) from PICC Group in December 2020, the company is 89.36% owned by PICC Group and 10.64% owned by Asia Insurance (Investment), Limited, which is a subsidiary of Asia Insurance Company Limited. Both shareholders are listed on the Hong Kong Stock Exchange, while PICC Group is also listed on the Shanghai Stock Exchange. As the sole overseas insurance entity of PICC Group, PICC HK plays a key role in deploying the group’s strategies abroad. The company continues to benefit from the overall operational synergies throughout the group, especially in the areas of underwriting, investment management and risk management.
PICC HK maintains very strong overall balance sheet strength, supported by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s liquidity is strong, while its investment portfolio is diversified, with the majority of its assets allocated to investment grade bonds and cash and cash equivalents. An offsetting factor is an increasing trend of reinsurance dependence as the third-party inward reinsurance business has expanded over the past few years.
PICC HK’s adequate operating performance is demonstrated by a five-year weighted average operating ratio and return-on-equity ratio of 98.1% and 3.6% (2016-2020), respectively, as calculated by AM Best. The company reported positive after-tax net profit of HKD 66.7 million, supported mainly by stable investment income and increased net premium written. Despite growth in premium revenue, its fiscal year 2020 underwriting performance was offset by a one-off large loss, with a combined ratio that remained above 100%.
Negative rating actions could occur if there is significant deterioration in PICC HK’s risk-adjusted capitalisation due to increased underwriting risk brought on by higher business capacity and/or failure to develop its overseas insurance business in a prudent manner.
Negative rating actions could also occur if there is a decline in operating performance due to deterioration in underwriting outcome.
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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