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Ratings agency AM Best has maintained its positive ratings for the Hong Kong subsidiary of state-owned People’s Insurance Company of China (PICC HK), amid the firm’s “very strong” balance sheet and “adequate” operating performance.
PICC HK saw its financial strength rating affirmed at ‘A-’ or ‘excellent’, and its long-term issuer credit rating at ‘a-’. AM Best said the outlook for these ratings is stable.
The ratings also reflect the firm’s limited business profile and appropriate enterprise risk management, and the “lift” it receives from its parent company.
The Hong Kong firm is well-capitalised, as measured by AM Best’s Capital Adequacy Ratio (BCAR). Its capital and surplus grew during the past five years through partial retention of net profits, and the capital position was further strengthened in 2017 due to the capital injection of HK$140 million from its two shareholders, PICC and Asia Insurance, who hold a 75% stake and 25% stake, respectively.
“As PICC Group’s sole overseas subsidiary, PICC HK plays a strategic role in the group’s overseas development. In addition to capital support provided by the group, PICC HK also benefits from underwriting inward treaty from its affiliated company, PICC Property and Casualty Insurance Company, which contributes a significant volume of business to the company’s book,” AM Best added.
However, the ratings agency said the ratings were partly offset by the firm’s small presence in Hong Kong’s non-life insurance market – it mainly writes commercial lines business in the competitive domestic market under a prolonged soft market environment.
Ratings may go up if the firm can improve its business profile significantly while maintaining adequate operating performance and risk-adjusted capitalization at a very strong level, the credit ratings agency said.
“Negative rating actions could occur if PICC HK’s operating performance deteriorates significantly and erodes its risk-adjusted capitalization. A reduced level of support from the PICC Group, or deterioration in the group’s credit profile may also bring negative rating pressure on PICC HK,” it added.
