AM Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Ratings (Long-Term ICR) and affirmed the Financial Strength Ratings (FSR) of A (Excellent) and the Long-Term ICR of 'a' of
The outlook of the FSR is stable. (See below for a detailed listing of the companies.)
At the same time, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of 'a-' of
The ratings of China Re reflect its balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The revision of China Re's Long-Term ICR outlook to positive reflects its continued international expansion, with its 2019 acquisition of
China Re's consolidated risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), remained at the strongest level at year-end 2019. Total capital and surplus increased by 11% to
The group has a track record of profitable operating results, mainly attributed to favourable investment returns supported by a growing stream of interest income sourced from fixed-income investments. The five-year (2015-2019) average return-on-equity ratio was 7.5%. Notwithstanding, the underwriting margins across the group's key business segments remained subdued due to the continued intense market competition. While the COVID-19 pandemic has had limited impact to the group's domestic businesses, results in its overseas P/C reinsurance segment were negatively impacted during the first half of 2020. Nonetheless, the group generated profit for the period.
The ratings also recognise the strategic role China Re has in supporting the continuous development of
Established in
The ratings of China Re HK reflect its balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings also reflect the company's important strategic position to the overall China Re group as its overseas life reinsurance subsidiary, as well as the implicit and explicit support from China Re Life, including capital, brand recognition, business development, investment, risk management and operational support.
China Re HK's balance sheet strength assessment has been revised to strong from very strong. While AM Best expects the company's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), to remain at a robust level at year-end 2020, it is projected to exhibit a steeply declining trend over the next five years, mainly attributed to the increasing investment risk exposure in tandem with the rapid business expansion. Notwithstanding, the company's investment portfolio mainly consists of high quality fixed-income investments, and the company's capital and surplus should grow organically through full profit retention.
China Re HK's business has recorded robust expansion at a faster-than-projected growth rate in the first half of 2020, with gross premiums written during the six-month period exceeding the projected amount for the full year by more than 100%. According to the company's business plan, operating results in 2020 are expected to be negative mainly due to new business strain. Going forward, AM Best will continue to monitor the company's premium growth and operating results closely in comparison to its business plan and capital plan.
China Re HK's underwriting portfolio mainly consists of reinsurance treaties of short-term savings-type endowment products denominated in
Positive rating actions could occur for China Re if it further enhances its global footprint toward achieving a more globally diversified underwriting portfolio without unfavourable divergence from its risk appetite, or if China Re demonstrates sustained improvement in its underwriting profitability.
Conversely, negative rating actions could occur if there is a material decline in the company's risk-adjusted capitalisation or if its leverage ratio increases significantly. Negative rating actions could also occur if the company exhibits a sustained deteriorating trend in its operating performance.
Negative rating actions may occur for China Re HK if the company reports ongoing operating losses, or the company's risk-adjusted capitalization declines to a level that no longer support the current balance sheet strength assessment, due to higher-than-expected business expansion without capital injection for supporting the growing risks. A material decline in the company's strategic importance to the parent group or a significant decline in the level of parental support may result in a negative impact on the ratings of China Re HK.
The FSR of A (Excellent) and the Long-Term ICR's of 'a' have been affirmed, with the Long-Term ICR outlook revised to positive from stable and the FSR outlook at stable for the following subsidiaries of
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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