AM Best Revises Outlooks to Positive for PVI Insurance Corporation
AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of "bbb+" of PVI Insurance Corporation (PVI Insurance) (Vietnam).
The ratings reflect PVI Insurance's balance sheet strength, which AM Best categorises 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 revised outlooks reflect operating performance metrics that have strengthened in recent years and compare favorably with industry peers and global benchmarks. Underwriting performance has shown good stability over time, supported by robust earnings from profitable commercial and industrial business achieved through an ongoing focus on risk selection and expense control. While other major lines of businesses, including personal accident and motor insurance, have seen high competition leading to elevated loss ratios, the company has undertaken portfolio remediation measures, which included tighter underwriting controls, more refined performance monitoring, nonrenewal of unprofitable accounts and centralisation of claims management processes. In addition, underwriting performance has shown further positive development in the first half of fiscal-year 2020, particularly in motor, health and personal accident lines of business as a result of COVID-19-induced community lockdown and mobility restriction measures. However, risks to the commercial and industrial insurance segments, including premium contractions due to economic uncertainty, remain feasible over the near term. In addition, investment income, which consistently has enhanced overall earnings, may be pressured due to lower interest rates on deposits and limited dividends from equity holdings.
The ratings also reflect the implicit support for various aspects of the business that PVI Insurance receives from the HDI group. Although PVI Insurance's operations account for a small portion of HDI V.a.G.'s overall revenues and earnings, the company is viewed to be a strategic component to the HDI group's international expansion plans.
PVI Insurance's balance sheet strength asessment is underpinned by risk-adjusted capitalisation that remains at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR). Good financial flexibility was demonstrated by a history of capital injections, including a most recent round of VND 500 billion (USD 22 million) from its immediate parent, PVI Holdings, in second-quarter 2020. At the same time, the company has exhibited a high dividend payout ratio over recent years, although retained earnings combined with periodic capital contributions have remained sufficient to support business growth. An offsetting balance sheet factor continues to be the company's high reinsurance usage and dependence to enable the underwriting of large commercial property, energy and engineering risks.
PVI Insurance's business profile is assessed as neutral. PVI Insurance is the second-largest insurer in Vietnam's non-life market by 2019 gross premium written (GPW) and has a strong market 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 ultimate majority ownership by HDI V.a.G. is 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.
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