Press Release - JUNE 06, 2019
AM Best Affirms Credit Ratings of CMB Wing Lung Insurance Company Limited
FOR IMMEDIATE RELEASE
HONG KONG - JUNE 06, 2019
The ratings reflect CMBWLI’s balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, neutral business profile and marginal enterprise risk management (ERM).
CMBWLI’s very strong balance sheet strength assessment is underpinned by its moderate underwriting leverage, prudent reserving practice and robust risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Its capital and surplus has grown organically by more than 40% over the past five years, driven by full retention of its net profits. Although CMBWLI’s plan to repay a subordinated loan of HKD 65 million (USD 8.3 million) in 2019, which remains subject to regulatory approval, AM Best anticipates that this repayment will have a minor impact on the company’s regulatory solvency ratio.
The company has a track record of profitable operating performance, with a double-digit return-on-equity for fiscal years 2014-2017. In 2018, the insurer recorded its first after-tax net loss of HKD 44 million (USD 5.6 million) in 10 years, owing to adverse investment results, including a bond default, mark-to-market losses from a fund, and a one-off realized loss from bond portfolio de-risking activities. As a result of its de-risking exercise and recognition of significant impairment of the defaulted bond, CMBWLI has reduced its overall investment risks. Hence, AM Best does not expect a similar magnitude of the adverse investment performance experienced in 2018 to reoccur in the medium term.
In terms of underwriting performance, the company outperforms its domestic peers in the commercial lines sector. It consistently delivered a combined ratio below 90% over the past five years, despite intense market competition in CMBWLI’s key business line, which is statutory general liability.
CMBWLI is a medium-sized non-life insurer in Hong Kong with over 30 years of operating history, which has helped it establish long-term relationships with clients and brokers in its domestic market. The company’s book of business is concentrated in competitive commercial lines. Nonetheless, the insurer is diversifying its portfolio gradually into personal lines by leveraging the bancassurance and digital channels of its parent, CMB Wing Lung Bank Limited, a wholly owned subsidiary of China Merchants Bank Co., Ltd. in mainland China.
AM Best views CMBWLI’s risk management framework as evolving, and considers the company’s adoption and enhancement of its new ERM framework to be a work in progress. The company has established a risk committee, defined its risk appetite, as well as identified different types of risks and formulated mitigation plans, in compliance with the local regulatory requirements.
Positive rating actions could occur if CMBWLI continues to demonstrate improvement in enterprise-wide risk management, while maintaining robust risk-adjusted capitalization and a favorable operating performance. Negative rating actions could occur if the company’s risk-adjusted capitalization deteriorates materially due to adverse underwriting or investment losses, or if the company’s business profile notably weakens.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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