MSIG Insurance (Hong Kong) [MSIG HK] is expected to maintain a profitable underwriting performance over the coming two years, according to S&P Global Ratings.
Solid Japanese customer relationships built at the group level would support this, says S&P, adding that it expects the underwriting performance of MSIG HK's Japanese-related business to recover, following two large marine losses and increased medical claims in 2021. The Japanese-related business accounted for about 15% of GWP (2020: 16%). This business contributed about 43% to underwriting profits on average in the past three years. MSIG HK will also likely maintain disciplined underwriting.
S&P believes the insurer will focus on profitability for its local book amid intensified market competition, especially in the EC, medical and motor lines.
MSIG HK reported an overall combined ratio of 93.25% in 2021, versus 91.72% in 2020. It has reported underwriting profits in the past five years, except losses in 2018 due to Typhoon Mangkhut and other unfavourable claims in marine and general liability lines.
S&P believes that the MS&AD Insurance group is highly unlikely to sell MSIG HK despite the Hong Kong unit's small earnings contribution to the group and the modest capital employed.
S&P says MSIG HK is closely aligned with the group's overseas expansion strategy, especially in Asia. The insurer provides insurance services to the group's shared Japanese clients operating in Hong Kong, which is an important regional business and trading hub. In S&P's opinion, MSIG HK will continue to benefit from the group's strong commitment of support through MSI. Such support includes underwriting expertise, investment management, actuarial, reinsurance protection, and risk management.
The global credit rating agency says that the major rating factor for MSIG HK (A+/Stable) is a guarantee of insurance policy obligations by its intermediate parent, Mitsui Sumitomo Insurance. S&P equalises the financial strength rating on MSIG HK with that of MSI (A+/Stable/A-1). MSI is a core subsidiary within the wider MS&AD Insurance Group. MSIG HK is assessed as a highly strategic subsidiary of MS&AD that provides supplementary support.
In S&P's view, MSIG HK will maintain a small presence in Hong Kong's competitive and fragmented property and casualty (P&C) insurance market. Based on regulatory disclosures, the insurer was ranked 20th with about a 1.55% market share in terms of GWP in 2021. S&P expects MSIG HK's GWP to grow modestly in the coming few years. Growth will likely come from some recovery of business lines such as employee compensation (EC), and marine and travel insurance as corporate business activities increase and travel restrictions ease globally.
S&P attributes some of the reduction in GWP in 2021 partly to the insurer's tightening of its underwriting guidelines and exit from some accounts with unfavourable performance in motor and medical insurance.
MSIG HK has a reasonably diverse business mix for a small insurer. General liability is the insurer's largest business line, accounting for 35% of its total GWP. This was followed by 28% from property, 14% from motor, and 11% from accident and health insurance in 2021.
MSIG HK has sufficient capital buffers to meet local regulatory requirements. A prudent investment strategy and modest business growth underpin this. This is despite high dividend payouts to its parent. S&P expects the insurer to monitor its capital position in preparation for the upcoming risk-based capital regime in Hong Kong. MSIG HK maintains a liquid asset portfolio dominated by bank deposits and fixed-income investments with good credit quality. S&P also views the insurer's reinsurance protection as adequate, applying guidelines provided by the parent. Its reinsurance panel is diverse and well-rated, including MSI.