Press Release - DECEMBER 06, 2018
AM Best Affirms Credit Ratings of Qianhai Reinsurance Co., Ltd.
FOR IMMEDIATE RELEASE
HONG KONG - DECEMBER 06, 2018
Founded in December 2016 with an initial capitalization of RMB 3 billion (USD 461 million), QHR is a composite reinsurer controlled by three Chinese state-owned enterprises. The company underwrites mainly proportional treaty business in the non-life segment. In the life reinsurance segment, it offers traditional life protection products and savings products, as well as capital management solutions in the form of financial reinsurance.
The ratings reflect QHR’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
QHR’s very strong balance sheet strength is supported by its conservative underwriting leverage and low net catastrophe retention. The company benefits from strong shareholder support and commitment, and expects to exercise full profit retention within its first five years of operation. In spite of conservative loss ratio assumptions, QHR expects to generate net operating profits starting from its third year of operation (2019). As of September 2018, the company’s overall premium income and profitability levels have been largely in line with its business plan. QHR plays a strategically important role in the development of the Qianhai Free Trade Zone, which is designated as a regional reinsurance hub by China’s regulator.
Offsetting rating factors include QHR’s relatively high investment risk, as a material portion of its investment portfolio consists of equities and alternative assets, resulting in vulnerability to capital market volatility, as well as liquidity risk and credit risk exposure. In addition, day one loss from long-term savings reinsurance products adds pressure to the company’s profitability in the initial years of risk assumption. Due to its startup nature, QHR also faces execution risk in achieving its business plan.
While positive rating actions are unlikely in the near term, negative rating actions could occur if the company materially deviates from its business plan, including an adverse deviation from its projections, or if its liquidity or risk-adjusted capitalization levels diverge from AM Best’s expectations. A reduced level of commitment from the three strategic shareholders also would impact the ratings negatively.
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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