AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Hyundai Insurance (China) Co., Ltd. (HIC) (China). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect HIC’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
HIC’s very strong balance sheet strength is underpinned by its strongest risk-adjusted capitalisation level at year-end 2022, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s paid-in capital increased to RMB 1.7 billion from RMB 550 million, after completing additional capital injection from new strategic investors in 2020. HIC’s strategic focus has expanded from the commercial property segment through affiliation with Korea interest abroad to personal line products including motor, health and accident, as well as commercial liability. Over the short to intermediate terms, AM Best expect HIC’s risk-adjusted capitalisation to remain supportive of the very strong balance sheet assessment, albeit exhibiting a declining trend due to the combined effects of elevating underwriting leverage and accumulated operating losses from underwriting results. Other supportive factors include the company’s prudent investment strategy and highly liquid investment portfolio, as well as decreasing dependency on reinsurance due to the stabilisation of net retention levels as a result of diversification into the personal lines business.
HIC experienced an underwriting loss in 2022, albeit on a smaller scale compared to 2021. With its shift of strategy to personal lines from 2021, loss ratios on health and liability deteriorated, while the loss ratio for motor and accident stabilised during 2022, and the first half of 2023. Although the company experienced a surge in operating expenses in 2021, due to business transformation, the expense ratio has decreased and stabilised since 2022. HIC’s bottom line has been supported by a steady stream of interest income. However, with the growing portfolio and continued business transformation efforts, the company does not expect to break even in the short term.
In view of the continued competitive landscape and the dominance of a few top players in China’s non-life insurance industry, AM Best expects HIC to remain a small player in the market despite achieving double-digit growth in gross premiums written. Further uncertainties could be caused by the company’s selection of a business diversification strategy, as well as execution of its business plan.
Positive rating actions could occur if HIC demonstrates successful execution of its business plan; for example, achieving faster-than-expected turnaround and sustained improvement in its operating performance, while maintaining a supportive level of risk-adjusted capitalisation. AM Best will continue to monitor HIC’s business execution.
Negative rating actions could occur if there is significant and adverse deviation in HIC’s business execution compared with its business plan, leading to material deterioration in its risk-adjusted capitalisation. Negative rating actions could occur if the company's operating performance materially deviates from business plan and resulting in pro-longed operating loss beyond AM Best's expectations. Negative rating actions also could occur if the company experiences major failure in risk management such that it no longer supports the current appropriate ERM assessment.
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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