Best’s News & Research Service - December 08, 2023 09:41 AM (EST)
AM Best Affirms Credit Ratings of China Taiping Insurance (HK) Company Limited
- December 08, 2023 09:41 AM (EST)
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 China Taiping Insurance (HK) Company Limited [CTPI(HK)] (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CTPI(HK)’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM). It also incorporates the rating enhancement that CTPI(HK) receives from its parent, China Taiping Insurance Holdings Company Limited (CTIH).
The assessment of CTPI(HK)’s balance sheet strength at the very strong level is supported by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), at the strongest level. CTPI(HK)’s capital and surplus (C&S) stayed stable in the year 2022 and arrived at HKD 5.1 billion (USD 647 million) at the end of the year. Furthermore, the company’s C&S increased in the first nine months of 2023, which is attributed to positive investment fair value changes in tandem with capital market recovery. As of year-end 2022 to end-June 2023, the majority of CTPI(HK)’s invested assets were comprised of income-generating securities including bonds and investment properties. Moreover, during this period, the company maintained limited exposure in listed shares and private funds. In addition, CTPI(HK) continued to de-risk its investment portfolio by lowering exposure to non-investment grade or non-rated bonds, as well as private equity funds. Going forward, AM Best expects CTPI(HK) to continue adopting a prudent investment strategy and stringent risk management. Other supporting factors include appropriate reinsurance arrangements and comparatively low underwriting leverage. Over the short to medium term, AM Best expect CTPI(HK) to remain an abundant buffer for its risk-adjusted capitalisation.
CTPI(HK) operating performance is assessed at adequate. The company has been profitable over the last decade other than 2020, when a sizable impairment loss from private funds was booked. 2022 net profit was HKD 123.4 million, driven by its net investment income. Its return on equity (ROE) in year 2022 was 2.4%, slightly higher than the last five year (2018-2022) average ROE at 1.7%. CTPI(HK)’s underwriting results have been improving, with steady declining of loss ratios coupled with lowering expense ratios, which have resulted in a better combined ratio when compared with the 2019 experience, albeit its combined ratio has been above 100%. CTPI(HK) has maintained a robust net investment income from its income-generating invested assets with mid-single-digit investment yield not including gains over the last five years. Going forward, AM Best expects investment income to continue being the driver of the bottom line, while its underwriting performance remains marginal.
The business profile of CTPI(HK) is assessed at neutral. The company has been a longstanding player in Hong Kong’s non-life market, with market share of 4.2% in terms of onshore gross premiums written in 2022. In 2022, the company’s direct premium growth was driven by a top line increase in motor, ship and accident and health. Over last two years, CTPI(HK) has reduced its reliance on inward business by increasing local direct premium. Going forward, the company expects to maintain its market position in Hong Kong and continue to build a balanced portfolio focusing on direct business over the short to medium term.
CTPI(HK) is a strategically important overseas operating subsidiary of China Taiping Insurance Group Ltd (TPG). It plays an important role in TPG’s footprint overseas, as well as its strategy in the Greater Bay Area. CTPI(HK) is integrated in the group’s capital management and ERM. CTPI(HK) also receives a series of implicit support from TPG, including brand recognition, investment, reinsurance and operations. AM Best believes the parental support rendered to CTPI(HK) will remain at a similar level in the short to medium term.
Negative rating actions could occur if there is a material decline in CTPI(HK)’s risk-adjusted capitalisation and/or in absolute capital size.
Negative rating actions could also occur if there is a sustained deterioration in its operating performance.
Negative rating actions also may result if there is a change in the credit profile of CTIH and/or TPG, or from a reduced level of support from either or a reduction in CTPI(HK)’s strategic importance and integration to CTIH or TPG.
Albeit less likely in the near term, positive rating actions could occur if CTPI(HK) demonstrates a sustained improvement in its operating performance better than its industry peers, while the credit profile of CTIH and TPG materially strengthens.
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.