A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings of “a” of China Reinsurance (Group) Corporation and its subsidiaries, China Property & Casualty Reinsurance Company Ltd. (CPCR) and China Life Reinsurance Company Ltd. (CLRC) (collectively known as China Re Group). The outlook for all ratings is stable, and all companies are domiciled in China.
Best said the “rating affirmations of China Re, CPCR and CLRE reflect the group’s supportive consolidated risk-adjusted capitalization, consistently favorable operating performance and leading position within the China reinsurance market.
“The ratings of China Re Group also reflect the financial support from its major shareholder, Central Huijin Investment Ltd. The ratings of the subsidiaries, CPCR and CLRC, also benefit from the extension of capital, operational and managerial support from the group.
“China Re Group’s overall high retention of operating earnings and significant revaluation gains on available-for-sale securities continued to strengthen its consolidated capital position in 2012. China Re Group’s risk-adjusted capitalization is expected to stay at a comfortable level to support the consolidated business volume anticipated in the medium term.”
Best’s report noted that during 2011 and 2012, “China Re Group’s underwriting results declined mainly due to the significant underwriting losses attributed to the 2011 Thailand flood-related claims from its international business. The loss was mitigated by the profitable domestic reinsurance and direct insurance businesses during this period.
“The group’s life reinsurance business also contributed positively to the operating results through its strong profile in the cross-border Renminbi (RMB) co-insurance business with life insurers in Hong Kong and other Asian markets. The group’s after-tax net income improved in 2012 over 2011, driven by significantly higher net investment gains during the year.
“In 2012, China Re Group took further steps to enhance its overall risk management capabilities under an integrated risk management approach by introducing the risk appetite system. To support the risk appetite decision-making process, the group implemented various projects to strengthen its data quality and modeling capabilities in assessing its risk units across the board on an ongoing basis. The overall impact to China Re Group’s performance remains to be seen over time.”
As partial offsetting factors Best cited “the effect of increasing market competition from both the onshore and offshore reinsurers, the continued capital demand from the subsidiaries and growing aggregation in their domestic catastrophe risk exposure. China Re Group is committed to managing its domestic and overseas catastrophe risk accumulation through aggregation management, the strengthening of risk selection capabilities and retrocession arrangements.
“In addition, China Re Group’s life reinsurance portfolio’s heavy concentration in offshore RMB co-insurance life business increased its sensitivity to market movements, as well as any potential reduction in its share of co-insurance business upon the gradual relaxation of onshore investments channeled to offshore life insurers.”
In conclusion Best said: “While China Re Group is well positioned at its current rating level, factors that could trigger potential negative rating actions include a downward trend in its operating profitability and/or a substantially weakened consolidated and/or subsidiaries’ stand-alone risk-adjusted capital position.”
Source: A.M. Best