Best Affirms Wing Lung Insurance ‘A-‘ Rating

A.M. Best Co. announced that it has affirmed the financial strength rating of “A-” (Excellent) of Hong Kong’s Wing Lung Insurance Company Limited (WLI) with a stable outlook.

“The rating reflects WLI’s excellent underwriting performance, high liquidity and strong capitalization,” said Best. “The rating also recognizes the company’s robust business growth and continuous improvement in market presence.”

The announcement called WLI’s 2003 performance “remarkable,” noting that “underwriting income reflected an increase of 108 percent compared with 2002,” and that “despite the deterioration in loss and expense ratios, both the combined and operating ratios have been consistently below 100 percent during the last three years.

“The company maintained a liquid and conservative investment portfolio, with approximately 72 percent of total assets comprised of cash and 8 percent in medium-to-high quality bonds as of fiscal year-end 2003. Equities, unit trusts and affiliated investments are retained with a minimal portion of total investments.”

Best also noted that in “addition to the stable internal growth of capital and surplus through solid fiscal earnings, the capital injections of HKD 100 million (USD 12.8 million) and HKD 140 million (USD 18 million) were made during fiscal years 2002 and 2003, respectively, resulting in strengthened capital and surplus at a growth rate of 210% since fiscal year 2001. The Best’s Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis, also demonstrates an adequate solvency margin.”

WLI ranked as Hong Kong’s 7th largest general insurer in annualized premium in fiscal year 2003. “In particular, the company became the second-largest insurer in the general liability market with 7.4 percent of total market share, an improvement from 5.2 percent in 2002,” said Best.

“Offsetting factors include the weak profitability in the motor business and the intense competition in the general liability market, upon which the company has heavily relied for profit,” the bulletin noted. “The general liability and motor segments are the two main contributors of premium for WLI. The continued high fiscal deficits of motor will exert pressure on the company’s overall earnings.”

Best concluded, however, that “improvement in hardened premium rates and tightened underwriting controls is expected to keep up the success in underwriting performance. By having a heavy concentration in the general liability line of business, any adverse movement of rates may create a negative effect on the profitability of the company.”