Best’s News & Research Service - May 25, 2022 11:25 AM (EDT)
AM Best Affirms Credit Ratings of FuSure Reinsurance Company Limited
- May 25, 2022 11:25 AM (EDT)
Hong Kong //BestWire// - AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of FuSure Reinsurance Company Limited (FuSure) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect FuSure’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 (ERM). The ratings also reflect the implicit and explicit support from its ultimate parent, Tencent Holdings Limited (Tencent), including capital, business development, investment, risk management and operational support.
AM Best projects FuSure’s risk-adjusted capitalisation to remain at the strongest level throughout the forecast period up to 2025, as measured by Best’s Capital Adequacy Ratio (BCAR). This result is underpinned by expected capital support from its shareholders, prudent investment strategy and retrocession support. Partially offsetting factors to the balance sheet strength include the modest size of the capital base and the projected fast-increasing underwriting leverage.
As a start-up reinsurer, FuSure projects moderate net losses during the first few years of operation. Notwithstanding, the company reported a significantly smaller-than-expected net loss in 2021, attributed to its higher earned premium with more favorable claims and expense experiences. The company targets to achieve break-even by 2023 and deliver a mid-to-high single-digit return on equity by 2025. In addition, its book of business benefits from lowered underwriting volatility due to the sliding-scale commission structure of major treaties. FuSure’s investment return is projected to remain stable at low single digit over the forecast period, given that most of its invested assets are short-term investment-grade bonds.
Leveraging the parent group’s established insurance client network and distribution support, FuSure is actively building its market presence with a focus on accident and health reinsurance in the Greater China region during its initial development phase. While the underwriting portfolio currently exhibits concentration in terms of product lines and clientele, the product risk of health insurance is considered moderate and the company intends to diversify its book of business and geographical outreach over the intermediate term.
FuSure continues to refine and strengthen its ERM framework. It has defined its risk appetite, established the three lines of defence governance structure, formulated various risk policies and performed stress testing. While FuSure’s risk management capability is commensurate with its risk profile, AM Best expects the company to enhance its ERM further as the company grows in business size and risk exposure increases.
FuSure receives rating enhancement from implicit and explicit support from its ultimate parent, Tencent, which owns 85.01% of shares of FuSure. FuSure is viewed as a long-term strategic investment of Tencent, which has a sizable balance sheet, high financial flexibility and excellent credit fundamentals. AM Best expects FuSure to benefit from the parent group in terms of effective use of innovation and technology, leading to competitive advantages in product design and pricing sophistication.
The stable outlooks reflect AM Best’s expectation that FuSure will maintain its solid risk-adjusted capitalisation with strong shareholder support while developing its business profile without material adverse deviation from its business plan.
Positive rating actions could occur if the company can demonstrate successful execution of its business plan and further strengthen its balance sheet. Negative rating actions could occur if the company materially deviates from its business plan, including adverse deviation from its projections, a significant decline in risk-adjusted capitalisation and liquidity level, or the operating performance no longer supports its current ratings. Negative rating actions also could occur if there is a material decline in the level of support it receives from its ultimate parent, Tencent.
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 Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.