Best Affirms China Re and Subs ‘A’ Ratings; Outlook Stable

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit ratings of “a” of China Reinsurance (Group) Corporation (China Re) and its subsidiaries, China Property & Casualty Reinsurance Company Ltd. (CPCR) and China Life Reinsurance Company Ltd. (CLRC). The outlook for all of the ratings is stable.

The rating affirmations reflect China Re’s “excellent balance sheet strength, stable operating performance and established business profile as the only state-owned reinsurance group in Mainland China,” Best explained.

The reinsurer has been in operation for over 60 years, and “has established a strong position in the domestic market, mainly stemming from its long term business relationships with its local cedants.” Best added that it “believes the strong support received by China Re from its shareholders, the Ministry of Finance of China and Central Huijin Investment Ltd, a state-owned investment company, has been historically important to the growth of the group and will remain essential going forward.

“China Re’s balance sheet strength demonstrates strong risk-adjusted capitalization. While the company experienced organic growth in adjusted capital and surplus, its equity risk improved in 2010 arising from lower levels of unaffiliated private investments. The net premium leverage stood at a conservative level for 2010.” Best also indicated that it “anticipates the company’s risk-based capitalization will remain supportive of its projected business growth over the next two years.”

As partial offsetting factors Best cited the “increasing risk exposure to natural catastrophe losses worldwide and potential capital infusion to China Re’s direct insurance subsidiary. Going forward, China Re is challenged to balance a high level of capitalization with alternative uses of capital to the direct insurance subsidiary, given its robust prospective business growth in the near term.”

Best noted the recent “frequency and severity of catastrophe losses worldwide (including the New Zealand earthquake followed by the Japanese earthquake and tsunami)” at the beginning of the year. As a result Best indicated that China Re’s higher exposure in catastrophe-prone regions, due to its growth initiatives in its international portfolio,” has made China Re’s enterprise risk management a critical concern. At present its ERM “remains in a developing stage within the company, which is continuing to work on a comprehensive and effective risk management framework,” Best explained.

In addition, China Re, as with the reinsurance market in general, is challenged with managing the soft stage of the underwriting cycle.

Best said the “rating actions for CPCR and CLRC reflect the consistently profitable operating performance of both companies.

“The underwriting performance of CPCR continues to be strong in 2010, while its combined ratio improved from the previous year. This result was due mainly to favorable loss experience during the year. While the company forecasts to maintain steady premium growth through 2012, the combined ratio is anticipated to trend upward, albeit remaining profitable in light of the competitive domestic market conditions.

As with the local industry’s growth, CLRC experienced a year-on-year premium growth of 23 percent in 2010, reflective of strong economic growth in the country. As the investment portfolio continues to perform well, CLRC is expected to remain an important source of income for China Re.”

Source: A.M. Best

Topics Trends Reinsurance China