AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of 'a-' (Excellent) of Ping An Health Insurance Company of China, Ltd. (Ping An Health) (China).
The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Ping An Health'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 ratings also reflect the implicit and explicit support that the company receives from its two major shareholders, Ping An Insurance (Group) Company of China, Ltd. (Ping An Group) and Discovery Limited, with respect to capital and financial support, business development, investment and risk management.
Ping An Health's capital and surplus continued to grow at a robust rate over the past few years, underpinned by capital injections and full retention of profits. In April 2022, the company completed a round of capital raising of CNY 2.6 billion (USD 393 million) from its shareholders. AM Best expects this capital boost to strengthen the company's risk-adjusted capitalisation, which will support Ping An Health's growing underwriting and asset risks from business expansion over the next three years, as measured by Best's Capital Adequacy Ratio (BCAR).
Ping An Health has consistently delivered positive operating earnings since 2017. The company's after-tax net profit improved by 48% to CNY 883 million (USD 139 million) in 2021, due to a combination of favourable performance in underwriting and investments during the year. The company's five-year average net combined ratio and return on equity were 95.0% and 22.3% (2017-2021), respectively. Notwithstanding, the underwriting margin has exhibited a moderately declining trend over the past few years due to heightened market competition, in particular, upward pressure in acquisition costs, although this slightly improved in 2021. The company's increasing acquisition ratio was partially offset by its increased scale from a lower management expense ratio and the company's business profile expansion over the past few years.
Ping An Health's investment performance was stable in 2021 due to its diversified investment portfolio that is mainly composed of cash and cash equivalents, as well as fixed-income securities in bonds and alternative investments. These assets have contributed to a growing stream of interest income over the past few years.
Ping An Health has experienced very robust growth in gross premium written (GPW) from 2017 to 2021, although the increase in 2022 is anticipated to be more subdued, partially attributed to its expanded premium base, intensifying market competition and a slowdown in offline sales activities due to COVID-19 restrictions. In view of market headwinds and growing demand, the company launched long-term health products in recent years to secure a first mover advantage in this segment. As part of Ping An Group, the company has a high level of control over its distribution channels, by leveraging the strong agency force of Ping An Life Insurance Company of China, Ltd. However, the moderate level of product concentration in its underwriting portfolio is an offsetting factor in its business profile. More than half of the Ping An Health's total GPW has been sourced from a single individual health product over the past few years.
Negative rating actions could occur if Ping An Health's risk-adjusted capitalisation weakens and the parent does not provide capital support, such that it no longer buttresses the current balance sheet strength assessment, for example, due to higher-than-expected underwriting or investment risks that materially deviate from the company's business plan. Negative rating actions could also occur if the company exhibits a significant deterioriation in its operating performance, such as having an ongoing underwriting loss from its concentrated individual health product or major reserve strengthening from long-term health products.
Positive rating actions could occur if the company is able to demonstrate self-sustaining internal capital generation by delivering a stable and positive operating performance.
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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