(The following statement was released by the rating agency)
Aug 27 -
Summary analysis -- QBE General Insurance (Hong Kong) Ltd. -------- 27-Aug-2012
CREDIT RATING: Country: Hong Kong
Local currency A/Stable/--
Primary SIC: Fire, marine, and
Credit Rating History:
Local currency Foreign currency
13-Jul-2012 A/-- --/--
06-Jan-2012 A+/-- --/--
29-Nov-2011 AA-/-- --/--
21-Dec-2009 AA/-- --/--
21-Dec-2007 A+/-- --/--
The ratings on QBE General Insurance (Hong Kong) Ltd. (QBE GI HK) reflect the implicit support from the insurer's new parent, the QBE group (core subsidiaries rated A+/Stable). The ratings also reflect QBE GI HK's stand-alone strong underwriting performance and capitalization, adequate reserves, and its prudently structured reinsurance program. The insurer's higher expense ratio than peers' due to commissions paid to bancassurance partners partially offsets these strengths.
We consider QBE GI HK to be a strategically important subsidiary of the QBE group. Hang Seng Bank Limited (AA-/Stable/A-1+; cnAAA/cnA-1+) completed the sale of QBE GI HK to Australia-based QBE Insurance Group Ltd. (A/Stable/--) on July 9, 2012. The deal marks the QBE group's expansion into the Hong Kong non-life insurance sector. As a newly acquired subsidiary and under our group methodology, the ratings on strategically important subsidiaries are limited to one notch below the ratings on the core operating subsidiaries.
QBE GI HK has a record of strong underwriting performance, reflecting its prudent underwriting practice and the high quality of its business. More than 85% of the insurer's business is from bank clients. QBE GI HK has an exclusive 10-year agreement with Hang Seng Bank. The insurer's average combined ratio for the past five years was 77.4%, better than the industry average. Although the insurer has a high expense ratio compared with its peers', its extremely low loss ratio offsets this weakness.
QBE GI HK capitalization is strong, based on our risk-based capital analysis. Its ratio of shareholders' funds to net premium income was 246% at the end of 2011, up from 225% at the end of 2010. The company may review its capital position under the group capital efficiency strategy, which aims to maintain a steady margin over the minimum regulatory solvency requirement to support growth.
QBE GI HK's reserves are good, reflecting the insurer's very low loss ratio as a result of its short-tail risk profile. Its outstanding claim reserves have consistently been sufficient. The insurer's reinsurance protection is prudently structured, with a good-quality panel of reinsurers. We expect this prudent structure to remain under the QBE group's stewardship.
We consider QBE GI HK's investment profile to be prudent. Investments are mostly in cash, deposits, and highly rated short- to medium-term bonds. We expect the insurer's investment returns to be modest but stable in 2012 because of its very conservative investment portfolio.
Enterprise risk management
We assess the QBE group's ERM framework to be strong. We expect QBE GI HK risk management framework and processes to quickly become highly integrated with the group and be of the same standard as those of the group's other subsidiaries in the region. We considered QBE GI HK's enterprise risk management prior to the acquisition to be adequate.
The stable outlook reflects our views that QBE GI HK will remain a strategically important subsidiary of the QBE group. We believe that the insurer will maintain its strong underwriting performance and capital. In addition, its competitive position should remain supportive of the current credit profile over the next two years.
We could upgrade QBE GI HK if we raise the rating on the group, provided the insurer maintains its strategically important relationship with the group.
We could lower the ratings on QBE GI HK if the rating on the group is lowered.
Related Criteria And Research
-- Interactive Ratings Methodology, April 22, 2009
-- Group Methodology, April 22, 2009