AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Sun Hung Kai Properties Insurance Limited (SHKPI) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect SHKPI’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
SHKPI’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is maintained at the strongest level. The company’s higher-risk assets, including non-investment-grade bonds and unlisted equities, and some sector concentration in the company investment portfolio exposed its risk-adjusted capitalisation to considerable market and credit risks. However, investment exposure to higher-risk assets was decreased during fiscal year 2022, and AM Best considers the company’s capital buffer sufficient to absorb the associated investment risks. The company’s reinsurance programme remained appropriate, with reinsurer panels in good credit quality.
Though SHKPI’s operating performance during fiscal year 2022 was negatively affected by deterioration in investment performance, its overall operating performance has been consistently strong and above the market average over the past few years. Supported by its parent in distribution with minimal gross acquisition expenses, SHKPI’s underwriting results continue to outperform industry peers. The company’s investment returns turned negative in fiscal year 2022 due to volatility in capital markets. China’s real estate sector liquidity crunch and recent equity market volatility may add short-term investment performance pressure on the company.
SHKPI is a wholly owned subsidiary of Sun Hung Kai Properties Limited, one of the largest property development and investment conglomerates in Hong Kong. It benefits from its parental network to write most of its business from associated and subsidiary companies. The company, therefore, continues to operate in a low acquisition cost business model. SHKPI maintains a small albeit profitable presence in Hong Kong’s general insurance market, focusing on employees’ compensation insurance.
The stable outlooks reflect AM Best’s expectation that SHKPI will maintain its strong operating performance, supported by a continued profitable underwriting portfolio, low acquisition cost structure and positive investment returns in the intermediate term. Negative rating actions could occur if there is significant deterioration in SHKPI’s operating performance; for example, due to lower investment returns or weakened underwriting results. Negative rating actions also could arise if SHKPI’s risk-adjusted capitalisation significantly deteriorates; for example, due to material investment losses.
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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