AM Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of “a-” to China Reinsurance (Hong Kong) Company Limited (China Re HK) (Hong Kong). The outlook assigned to these Credit Ratings (ratings) is stable.
China Re HK is a wholly owned subsidiary of China Life Reinsurance Company Ltd. (China Re Life), the domestic and international life and health reinsurance arm of China Reinsurance (Group) Corporation. China Re HK is a newly formed life reinsurance company domiciled in Hong Kong focusing on the life reinsurance business.
The ratings reflect China Re HK’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect the implicit and explicit support from China Re Life including capital, brand recognition, business development, investment, risk management and operational support.
China Re HK’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is projected to remain at a robust level over the short to intermediate term. AM Best expects the company’s capital and surplus to strengthen gradually through full earnings retention, according to its five-year forecast. The company has a prudent investment strategy with the majority of its investment assets allocated to short-term bonds of high credit quality. Notwithstanding, the overall investment risk exposure is expected to increase in tandem with the robust growth in the balance sheet.
The company’s underwriting portfolio mainly consists of reinsurance treaties of short-term savings-type endowment products within Hong Kong, which are relatively low risk, albeit margins remain thin.
Partially offsetting rating factors include the higher business execution risk given the start-up nature of China Re HK and the continued strong market competition.
China Re HK is well-positioned at its assigned ratings over the near term. Negative rating actions may occur if the company materially deviates from its business plan, resulting in adverse developments in the company’s risk-adjusted capitalization or operating performance that no longer supports the current rating level. Negative rating actions also could occur if there is a material decline in the company’s strategic importance to the parent group or the level of support it receives from the parent group declines significantly.
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