AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a" of Sun Hung Kai Properties Insurance Limited (SHKPI) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect SHKPI’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
SHKPI’s balance sheet strength is underpinned by its risk-adjusted capitalisation being at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). This result mainly reflects its strong liquidity, high quality of capital and appropriate reinsurance program. However, SHKPI’s investment portfolio shows an appetite to invest in higher-risk assets, which exposes its overall earnings to considerable market and credit risks. These risks are mitigated partially by the company’s significant level of excess capital.
SHKPI’s strong operating performance, demonstrated by a five-year weighted average return on equity of 18%, has been driven by solid underwriting results and consistent investment returns. The company has demonstrated good underwriting performance across its key lines of business, with a five-year average combined ratio under 70%. Operating performance is supported further by stable investment income, with a five-year average net investment return of approximately 4%, excluding capital gains or losses.
SHKPI’s business profile is neutral, due in part to its affiliation with Sun Hung Kai Properties Limited (SHKP), one of the largest and most well-established property development and investment conglomerates in Hong Kong. As a member of the SHKP group, SHKPI benefits from SHKP’s established business profile in Hong Kong, which provides SHKPI with opportunities to underwrite a large volume of business from its group and related parties. The book of business sourced from SHKP and its related entities has provided SHKPI with a stable presence in Hong Kong’s non-life insurance market, particularly in the employees’ compensation segment.
The stable outlooks reflect AM Best’s expectation that SHKPI’s operating performance will remain at a strong level, underpinned mainly by its continued focus on profitable underwriting, low acquisition costs and positive investment returns. Negative rating actions could occur if the company experiences material and continual deterioration in its risk-adjusted capitalisation or experiences an unfavourable trend in operating performance.
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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