AM Best Affirms Credit Ratings of China BOCOM Insurance Company Limited
AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of "a-" (Excellent) of China BOCOM Insurance Company Limited (CBIC) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CBIC'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 wide range of support that the company receives from the Bank of Communications Co., Ltd. (BOCOM), including capital support, brand recognition, distribution, investment and risk management.
CBIC has the strongest level of risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), which is projected to remain stable at the strongest level over the next three years, supported by organic growth in capital and surplus. The company remains exposed to a high level of concentration risk in higher-risk investment assets with low transparency and liquidity, along with higher credit risks. Another partially offsetting factor is the relatively high level of reinsurance dependency, which is partly mitigated by CBIC's diversified reinsurance panel of sound credit quality.
CBIC diversified its investment portfolio into listed equity funds in 2021; the remainder of this portfolio consists of mainly bonds and cash. CBIC's net investment yield including gains declined slightly in 2021, mainly due to lower dividend income. Overall investment returns have been stable and moderate over the past five years.
CBIC maintains a modest presence and a diversified underwriting portfolio in Hong Kong's non-life insurance market. In terms of net premium written, the company's largest line of business is property damage, followed by accident and health, employees' compensation and pecuniary loss. The company's loss ratio recovered to alow level in 2021 as its claims experience in the accident and health line improved. While CBIC's net loss ratio is better than the market average, its expense ratio remains relatively high due to its small net premium base. The average net combined ratio has remained at approximately 100% over the past five years, despite a decreasing trend over the past three years.
Although its current ratings are well placed, negative rating actions could occur if there is a substantial decline in CBIC's overall balance sheet strength, for example, due to heightened exposure to higher-risk investments; a material deterioration in its operating performance; notably weaker support from its ultimate parent, BOCOM; or if the ultimate 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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