AM Best confirms credit ratings of China Merchants Insurance Company Limited
HONG KONG–(BUSINESS WIRE)–AM Best affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) from China Merchants Insurance Company Limited (CMI) (Hong Kong). The outlook for these Credit Ratings (ratings) is stable.
The ratings reflect CMI’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect parental support from China Merchants Group Limited (CMG), including capital support, brand recognition, investment management and risk monitoring.
The very good assessment of CMI’s balance sheet strength is supported by its highest level of risk-adjusted capitalization, as measured by the Best’s Capital Adequacy Ratio (BCAR). The company’s capital and surplus continued to grow organically in 2021 through the full retention of operating profits. The company maintained a conservative investment strategy, with the majority of its assets allocated to cash, bank deposits and short-term bonds. Premium ceding increased as the proportion of commercial business increased. The reinsurance program remained comprehensive with good credit quality reinsurers.
CMI’s operating performance was positive in 2021, with an after-tax profit of HKD 29 million (USD 3.7 million), supported by positive underwriting and investment results. The company has been profitable for the past five years with an average return on equity of 4.2% (2017-2021). Underwriting results showed a favorable improvement in 2021, with a net combined ratio of 84.9%, mainly supported by better claims experience during the year. Higher reinsurance fee income also helped to offset the upward pressure on the management expense ratio. A growing stream of interest income over the past five years has also contributed to the company’s positive and stable investment results, although performance has remained weak.
CMI maintained a stable but modest presence in the Hong Kong non-life insurance market. The company’s underwriting portfolio remained diversified. Premiums turnover increased by 11.8% in 2021, mainly driven by the marine, casualty and casualty lines of business, while the performance of the accident line continued to be held back by travel restrictions in the context of the COVID-19 pandemic situation.
Although CMI is well positioned at its current rating level, negative rating actions could occur if the company suffers a material deterioration in its risk-adjusted capitalization or operating profitability due to persistent adverse underwriting or investment results. A deterioration in the credit profile of the ultimate parent company, CMG, may also have a negative impact on CMI’s ratings.
Ratings are communicated to rated entities before publication. Unless otherwise indicated, the ratings have not been changed as a result of this communication.
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