AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of "a-" of China BOCOM Insurance Company Limited (CBIC) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CBIC’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect the wide range of support that the company receives as a wholly owned subsidiary of the Bank of Communications Co., Ltd. (BOCOM), a large state-owned banking group in China.
CBIC’s risk-adjusted capitalisation remained at the strongest level in 2019, as measured by Best’s Capital Adequacy Ratio (BCAR), and is supported by low underwriting leverage and a prudent reinsurance program. The company has generated moderate and stable net operating profits over the past five years, which contributed to its capital growth through full profit retention. Favourable investment income has continued to be the primary contributor to the company’s operating earnings. Despite its prudent underwriting strategy and better-than-average loss experiences, CBIC’s underwriting performance has remained marginal due to its high management expense structure, driven by its small net premium base and increasing personnel and regulatory compliance costs.
CBIC maintains a small underwriting portfolio in Hong Kong’s non-life market, and receives support from BOCOM in terms of distribution, brand recognition, investment, risk management, operations and capital. Following the introduction of Hong Kong risk-based capital requirements, CBIC has engaged external consultants to support them for refining risk policies, estimating future regulatory capital requirements, and preparing the Own Risk and Solvency Assessment report to be submitted to the Hong Kong Insurance Authority by the end of June 2021.
Offsetting rating factors include CBIC’s relatively high investment risk, as the company increased its allocation in higher-risk assets with less transparency, resulting in a heightened level of concentration risk, as well as elevated liquidity and credit risks. The company also has a relatively high reinsurance dependence; although, this is mitigated by a high-quality reinsurer panel. In addition, CBIC assumed and retained a large-sized inward facultative contract in 2019, which heightened the product concentration risk of the company.
While positive rating actions are unlikely to occur over the near term, negative rating actions could occur if there is a substantial decline in CBIC’s risk-adjusted capitalisation, a material deterioration in its operating performance, support from BOCOM weakens notably, or if the parent bank’s credit fundamentals deteriorate materially.
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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