Ratings Roundup: China Taiping (UK), Quálitas

February 28, 2014

A.M. Best has assigned a financial strength rating of ‘B++’ (Good) and an issuer credit rating of “bbb” to China Taiping Insurance (UK) Company Limited (CTIUK), both with stable outlooks Best said the ratings “reflect CTIUK’s improving operating performance and good risk-adjusted capitalization. The ratings also take into account the company’s niche business profile and strong links with its ultimate parent, state-owned China Taiping Insurance Group Ltd. (China Taiping). Best also explained that CTIUK “is a niche insurer catering predominantly to the needs of the Chinese communities established in the United Kingdom and a select number of other European countries. The company mainly operates in the retail market, targeting restaurants, takeaway outlets and shops. However, it has been diversifying its business profile by writing more commercial combined policies in 2013. In addition to this, CTIUK’s recent acquisition of several new broker partners should bolster premium growth in 2014. While CTIUK only accounts for a small proportion of China Taiping’s consolidated revenue, it benefits from the group’s brand recognition as well as investment and reinsurance support.” The report also noted that despite CTIUK’s volatile earnings in the past, “its profit before tax has improved in the last couple of years. This was driven by a more stable underwriting performance following the cancellation of loss-making professional indemnity business and recovering investment results. Going forward, the company is targeting a profit in the range of £1.5-2 million [$2.51 and $3.345 million] per year, but profit margins are expected to remain constrained by high acquisition expenses.” In addition Best indicated that “CTIUK’s risk-adjusted capitalization has been improving in recent years as a result of lower exposure to equity investments, relatively stable net written premium and increasing retained earnings. Going forward, the balance sheet strength is expected to remain supportive of the current ratings, despite the strong premium growth anticipated in 2014. In conclusion Best said: “Positive rating actions could occur for CTIUK if, over the next few years, it consistently improves its underwriting results while maintaining adequate risk-adjusted capitalization. Negative rating actions could occur as a result of excessive growth leading to a significant deterioration of earnings or risk-adjusted capitalization.”

 A.M. Best has upgraded the financial strength rating to ‘B’ (Fair) from ‘B-‘ (Fair) and issuer credit rating to “bb” from “bb-” of Mexico’s Quálitas Compañia de Seguros S.A.B. de C.V., both with stable outlooks. Bet said the “rating upgrades reflect Qualitas’ leading market position in the increasingly competitive Mexican automobile insurance segment, its formidable distribution network and solid overall profitability in recent years. Qualitas operates through a network of local agents, financial institutions and service offices and has established a formidable distribution capability throughout Mexico. This has enabled the company to maintain its leading market position in the Mexican automobile insurance segment in extremely challenging economic and market conditions. Qualitas reported favorable underwriting net income in 2012, reflecting its highest historical operating performance.” As offsetting factors Best cited, “Qualitas’ consistently elevated underwriting leverage and trend of underwriting losses. Historically, the company has operated with underwriting leverage considered higher than expected for an automobile insurance provider. Additionally, Qualitas maintains combined ratios just above breakeven due to its high level of loss and loss adjustment expenses recorded each year.” Best also noted that “key rating drivers that could lead to positive rating actions for Qualitas include continued favorable trends in revenues and earnings, capital growth and improvement in the underwriting leverage. Key factors that could lead to negative rating actions include unfavorable operating performance or weakened risk-adjusted capital.”

 

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