AM Best confirms the credit ratings of The People’s Insurance Company of China (Hong Kong), Limited
HONG KONG–(BUSINESS WIRE)–AM Best Affirmed The People’s Insurance Company of China (Hong Kong), Limited (PICC HK) financial strength rating of A- (Excellent) and issuer long-term credit rating of “a-” (Excellent) (Hong Kong). The outlook for these Credit Ratings (ratings) is stable.
The ratings reflect the strength of PICC HK’s balance sheet, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate management of business risks. The ratings also reflect the company’s strategic importance to its parent company, The People’s Insurance Company (Group) of China Limited (PICC Group) (China), as the sole overseas insurance entity and key overseas strategies of the PICC group.
PICC HK maintains a very strong overall balance sheet strength, supported by industry-leading risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR). The Company’s investment portfolio is diversified, with the majority of its assets spread among investment grade bonds, equities, cash and cash equivalents and funds.
PICC HK’s operating performance is deemed adequate with a five-year average cost income 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 are mainly driven by its investment income, supplemented by realized capital and foreign exchange gains in 2021. However, the shortage of cash in the Chinese real estate market in 2021 led to a decrease in fair value investments of PICC HK funds. The company’s technical results turned positive in 2021, mainly due to a lower gross commission ratio.
While maintaining its modest presence in the Hong Kong onshore insurance market, PICC HK has actively expanded its in-house reinsurance business in recent years. This strategy helped to diversify the company’s customer base, which was focused on the inter-company inbound reinsurance business of PICC Property and Casualty Company Limited. PICC HK has also established an insurance broker in Hong Kong as a subsidiary, which obtained approval for a broker’s license in 2022. The new broker is expected to better coordinate cooperation within the PICC group and with other other insurers in China and along the Belt-and-Road countries.
As the sole overseas insurance entity of the PICC Group, PICC HK plays a key role in rolling out the group’s overseas strategies. The company benefits from the overall operational synergies across the group, particularly in the areas of underwriting, investment management and risk management. There is a history of explicit support from PICC Group to PICC HK, as evidenced by several rounds of capital injection since the company was established 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 operational performance to a level that no longer supports adequate assessment of operational performance, or if the support that PICC HK receives from its parent company weakens. significantly or if the parent company’s credit fundamentals deteriorate significantly.
Ratings are communicated to rated entities before publication. Unless otherwise indicated, the ratings have not been changed as a result of this communication.
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