HONG KONG–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of China Taiping Insurance (Macau) Co., Ltd. (CTIM) (Macau). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CTIM’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
CTIM’s balance sheet strength has improved to the very strong level, mainly driven by organic growth in the company’s capital and surplus through profit retention, as well as the settlement of large claims and reinsurance recoverables related to prior accident years. The company’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is expected to remain at the strongest level over the medium term. The company’s investment strategy remains conservative and focused on investing in low-risk fixed-income assets, including cash and bonds. The company is moderately dependent on reinsurance protection for its large commercial accounts, which potentially exposes it to credit and liquidity risks in the event of large losses. The company has arranged a comprehensive reinsurance programme with a reinsurer panel of good credit quality.
CTIM continued to report profitable operating results in 2020, supported by both positive underwriting and investment results. The company reported a small uptick in its net loss ratio in 2020, partly attributed to the lower ratios in 2018 and 2019 as it benefitted from the release of reserves provisioned for some large claims that occurred in 2017. However, this effect has diminished over the years. Conversely, the net expense ratio remains stable. Due to the low interest rate environment and the volatile investment market in early 2020, CTIM posted a slightly lower overall investment yield. However, the company’s investment results remained positive in 2020 and continued to support the overall operating results through stable streams of interests, dividends and rentals incomes.
CTIM maintains a long track record as the leader in Macau’s non-life insurance segment, and has a market share of 33.4% in 2020 based on gross premium written. Leveraging its strong relationships with corporate clients, in particular Chinese state owned-enterprises, the company’s underwriting portfolio and distribution channel remain stable and diversified, albeit its business is mainly concentrated in Macau.
The company continues to enjoy a wide range of support from its parent and affiliates in areas including brand recognition, reinsurance and investment, as well as financial support when needed. Notwithstanding, AM Best views that the necessity of capital support from its parent company, China Taiping Insurance Holdings Company Limited (CTIH) has diminished in recent years, as CTIM’s capitalisation continues to grow organically and its risk adjusted capitalisation remains at a robust level.
CTIM is well-positioned at its current rating level; negative rating actions could occur if there is a material decline in the company’s risk-adjusted capitalisation or a significant and sustained deteriorating trend in its operating performance. A weakening credit profile of the parent company, CTIH, may also have a negative impact on CTIM’s ratings.
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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