AM Best Affirms Credit Ratings of The People's Insurance Company of China (Hong Kong), Limited
AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of "a-" (Excellent) of The People's Insurance Company of China (Hong Kong), Limited (PICC HK) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect PICC HK'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 the strategic importance of the company to its parent, The People's Insurance Company (Group) of China Limited (PICC Group) (China), as the sole overseas insurance entity and a key component of PICC Group's overseas strategies.
PICC HK maintains very strong overall balance sheet strength, supported by risk-adjusted capitalisation at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR). The company's investment portfolio is diversified with the majority of its assets allocated to investment-grade bonds, equities, cash and cash equivalents, and funds.
PICC HK's operating performance is considered adequate with a five-year average operating ratio of 97.2% and a five-year average return on equity of 4.3% (2017-2021), as calculated by AM Best. The company's positive earnings were driven mainly by its investment income, supplemented by realised capital and currency exchange gains in 2021. However, the liquidity crunch in China's real estate market in 2021 resulted in a decrease in fair value of PICC HK's fund investments. The company's underwriting results turned positive in 2021, mainly driven by a lower gross commission ratio.
While maintaining its modest presence in Hong Kong's onshore insurance market, PICC HK has been actively expanding its inward reinsurance business in recent years. This strategy helped to diversify the company's client base, which was concentrated on inter-company inward reinsurance business from PICC Property and Casualty Company Limited. PICC HK also established an insurance broker in Hong Kong as itssubsidiary, which obtained approval for a broker license in 2022. The new broker is expected to better coordinate the cooperation within PICC Group and with other insurers in China and along the Belt-and-Road countries.
As the sole overseas insurance entity of PICC Group, PICC HK plays a key role in deploying the group's overseas strategies. The company benefits from the overall operational synergies throughout the group, especially in the areas of underwriting, investment management and risk management. There is a track record of explicit support from PICC Group to PICC HK, as demonstrated by multiple rounds of capital injection since the company's establishment in 2002, the latest being a capital injection of HKD 970 million in December 2020.
Negative rating actions could occur if there is a decline in operating performance to a level that no longer supports the adequate operating performance assessment, or if the support PICC HK receives from its parent weakens notably or the parent'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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