Best’s News & Research Service - June 23, 2022 10:42 AM (EDT)
AM Best Affirms Credit Ratings of Zhongyuan Agricultural Insurance Co., Ltd.
- June 23, 2022 10:42 AM (EDT)
Hong Kong //BestWire// - AM Best has affirmed the Financial Strength Rating of B++ ( Good) and the Long-Term Issuer Credit Rating of “bbb+” (Good) of Zhongyuan Agricultural Insurance Co., Ltd. (ZYIC) (China). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect ZYIC’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.
The company’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), remained at the strongest level as of year-end 2021. AM Best expects the company to benefit from capital support from its shareholders to support its business expansion over the short to intermediate term. The company’s fixed income-oriented investment portfolio with strong liquidity and debt-free balance sheet are other supportive factors of its overall balance sheet strength. Given its strategic focus on agricultural insurance, the company’s significant catastrophe risk exposure relative to its capital size continues to be the key offsetting factor, despite being partially mitigated by product and geographical diversification.
Robust growth rates in key products including crop and livestock contributed to the expansion in ZYIC’s premium income in 2021. While the company reported better-than-average claims experience from the heavy rain that hit the Henan province in July 2021, the increase in its overall loss ratio more than offset the improvement in the expense ratio. Following the impairment losses related to premium receivables in 2019 and 2020, the company took remediation efforts and reported a favourable reversal of a bad debt provision in 2021. ZYIC’s net investment yield has gradually improved over the past few years due to higher income and capital gains. Going forward, AM Best expects the company’s investment return to be the major driver of its overall earnings while the underwriting margin remains stable yet thin.
The company has been the leading professional agricultural insurer in Henan for six consecutive years. ZYIC also continues to strengthen its business presence within Inner Mongolia and Heilongjiang, supported by favourable tender results of policy-oriented programs to secure its business during 2022 to 2024. Crop and livestock insurance accounted for about 70% of ZYIC’s gross written premiums in 2021 while it also aims to expand offerings of motor, accident and health, and property products that support the agricultural industry.
Positive rating actions may arise if ZYIC’s balance sheet strength improves significantly and sustainably, and demonstrates stronger resilience against the catastrophe exposure. Negative rating actions may arise if there is significant adverse deviation from the company’s business plan, including a shortfall in the capital injection plan that renders the balance sheet strength unsupportive of the business growth. Negative rating actions could also occur if the company’s operating performance experiences a deteriorating trend.
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.