AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of 'a' (Excellent) of CMB Wing Lung Insurance Company Limited (CMBWLI) (Hong Kong).

The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect CMBWLI's balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).

On 30 December 2022, CMBWLI completed a business transferal transaction in which it issued additional shares in exchange for the general insurance business (including assets and liabilities related to the business) of China Merchants Insurance Company Limited (CMI). In addition, on 28 June 2023, China Merchants Insurance Holdings (CMIH), the intermediate parent company of CMI, completed a capital injection of HKD 1,171 million to CMBWLI. After the above transactions, CMIH became the majority shareholder of CMBWLI by collectively holding 55% of its enlarged share capital, while China Merchants Bank Co., Ltd (CMB) indirectly owns the remaining 45%. As such, AM Best identifies China Merchants Group Limited (CMG), a state-owned enterprise that wholly owns CMIH, as the ultimate parent of CMBWLI.

CMBWLI's very strong balance sheet strength assessment is underpinned by its robust risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR). The company's capital base continued to grow organically in 2022, supported by its positive operating results and profit retention, partially offset by a one-off dividend in specie to CMB Wing Lung Bank in 2022. Based on 2023 unaudited financial statements, CMBWLI's total capital and surplus increased by 88% to HKD 2,949 million after the completion of the capital injection. During 2022 and 2023, cash and cash equivalents remained as CMBWLI's largest asset type. Additionally, the insurer continues to enhance the credit quality of its bond investments, which remains as its largest investment asset type other than cash, as well as the de-risking of its equity portfolio during 2023.

CMBWLI's overall operating performance has been consistently strong and better than average, as evidenced by annualised returns on equity of 8% and 9%, respectively, in 2022 and 2023. Net earnings continued to be supported by decent growth in premium volume and profitable underwriting results. CMBWLI's investment performance continues to be supported by a stream of interest and dividend incomes during 2022 and 2023.

CMBWLI is a medium-size, non-life insurer in Hong Kong, and one of the major market players in its domestic market's employees' compensation (EC) segment. The company's product mix remained diversified in 2023, with EC, motor and property damage making up the bulk of its business. With the transfer of general business from CMI, CMBWLI has further diversified its business portfolio with a stronger presence in the marine segment.

CMBWLI has continued to strengthen its risk management over the last few years, including investment risk controls, risk identification and monitoring tools, as well as risk governance. Going forward, AM Best views CMBWLI's ERM programme as benefiting from additional risk management resources, best practices and risk oversight from CMG.

Negative rating actions could occur if there is a continued deteriorating trend or an increased level of adverse volatility in CMBWLI's operating performance, due to adverse underwriting results or investment losses, or a material deviation in executing its business plan following the business transferal transaction. Negative rating actions also could arise if there is a significant deterioration in the company's risk-adjusted capitalisation, for example, due to material underwriting or investment losses. Although it is unlikely in the near term, positive rating actions could occur if there is a material and sustained improvement in CMBWLI's risk-adjusted capitalisation, while the company maintains its strong operating performance.

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.

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