AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of 'bbb+' (Good) of PVI Insurance Corporation (PVI Insurance) (Vietnam).
The outlook assigned to these Credit Ratings (ratings) is positive.
The ratings reflect PVI Insurance'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). In addition, PVI Insurance benefits from rating enhancement from HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G. or the HDI group).
The ratings of PVI Insurance were placed under review with developing implications on 1 July 2021, following an announcement by HDI Global SE that it had partially divested its shareholding in PVI Holdings, the immediate parent of PVI Insurance, to comply with a regulatory condition imposed by the State Securities Commission of Vietnam. As a result of this shareholding change, the ultimate ownership of PVI Holdings' total charter capital by HDI V.a.G. fell below 50%; this caused uncertainty over PVI Insurance's eligibility to continue receiving rating enhancement from AM Best in respect of its ownership, integration and support from HDI group.
The latest rating actions follow a period of further shareholding changes, which has seen the HDI group regain majority ultimate ownership of PVI Holdings. As a result of this, AM Best continues to afford rating enhancement to PVI Insurance in respect of its ultimate ownership by and the implicit support from the HDI group. Although PVI Insurance's operations account for a small portion of HDI V.a.G.'s overall revenues and earnings, AM Best views the company as being important to the HDI group's international expansion plans.
PVI Insurance's balance sheet strength assessment is underpinned by risk-adjusted capitalisation that is expected to remain at the strongest level over the medium term, as measured by Best's Capital Adequacy Ratio (BCAR). AM Best views the company's investment portfolio to be of moderate risk, with a majority allocation to cash and term deposits, albeit some exposure to higher-risk assets including affiliated private investments. Other balance sheet considerations include the company's high reinsurance usage and dependence, as well as its high dividend payout ratio over recent years, although retained earnings combined with periodic capital contributions have remained sufficient to support business growth.
PVI Insurance's underwriting results have improved over recent years and it has a five-year average return-on-equity ratio of 14.5% (2016-2020). Robust underwriting performance has been supported by profitable commercial and industrial business and ongoing remediation measures in motor and personal accident insurance. Loss experience also improved during the first nine months of 2021, due in part to COVID-19-induced community lockdowns and social restriction measures. In addition, the company's investment income has consistently supported overall earnings, although returns may be constrained by low interest rates over the near term.
The company's business profile is assessed as neutral. PVI Insurance is the second-largest insurer in Vietnam's non-life market by 2020 gross premium written with a market leading position in commercial and industrial lines of business, including property, engineering, marine, aviation and energy insurance. The company benefits from business sourced from its second largest shareholder, PetroVietnam group (PVN), the state-owned corporation operating in the oil and gas sector. The company's integration with HDI V.a.G. is also expected to strengthen its position in the regional industrial risks insurance market.
AM Best considers the company's ERM approach as appropriate given the size and complexity of its current operations. Going forward, AM Best expects PVI Insurance to benefit further from the HDI V.a.G. group's international product expertise in areas of risk selection, pricing and reserving, as well as its oversight and support in respect of risk management.
The positive outlooks reflect AM Best's expectation that the company will continue to demonstrate a trend of favourable underwriting and operating performance over the near to medium term. In addition, AM Best expects PVI insurance to maintain its importance and integration with HDI V.a.G. over the intermediate term.
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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