The operating performance of China Merchants Insurance (CMI) has improved over the past few years and remains positive, notes AM Best. The company recorded an after-tax operating profit of HK$11m ($1.4m) in 2019, with a return on equity of 3.5%.
Despite a positive operating performance in 2019, the company exhibited an underwriting loss with a net combined ratio slightly over 100%, although this has been improving gradually, says AM Best. The company’s claims experience was better than the industry average, albeit partially offset by its relatively high expenses.
Notwithstanding, CMI has been refining its underwriting portfolio and utilising a lower cost broker channel to expand its commercial business, which has resulted in a decreasing expense ratio in recent years. CMI’s investment income continued to offset the company’s underwriting loss and support overall operating profitability through stable streams of interest income from its investment portfolio.
AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of CMI. The outlook of these credit ratings is stable.
The ratings reflect CMI’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect the parental support from China Merchants Group (CMG).
CMI’s very strong balance sheet strength assessment is underpinned by its robust level of risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio.
Following a capital injection of HK$207m ($26.6m) from its parent company in 2016 and full profit retention over the past few years, the company’s solvency stood at a very healthy level as of year-end 2019.
At end-2019, the company’s investment portfolio mainly consisted of bonds and cash. While the company’s bond investments contained a moderate level of exposure to non-investment grade and non-rated bonds, a majority of these securities were issued by multi-national banks and large-sized Chinese state-owned enterprises. AM Best expects CMI to continue to closely monitor and refine the credit quality of its bond portfolio through prudent investment selection.
CMI maintained a stable yet small market presence in Hong Kong’s non-life insurance market, with a market share of 0.38% in 2019, in terms of gross premium written. CMI continues to diversify its underwriting portfolio by expanding its commercial business. In particular, the marine line of business was a major growth driver of premium revenue in 2019 and is expected to contribute to the company’s business growth over the short to intermediate term.