A.M. Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings of a of China Reinsurance (Group) Corporation (China Re) and its subsidiaries, China Property & Casualty Reinsurance Company Ltd. (China Re P&C), China Life Reinsurance Company Ltd. (China Re Life) and China Continent Property & Casualty Insurance Company Ltd (China Continent Insurance). The outlook of these Credit Ratings (ratings) is stable. All companies are domiciled in China.
The ratings reflect China Res balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The ratings also recognize China Re as the sole state-owned reinsurance group in China, through the 11.45% stake owned directly by the Ministry of Finance of the Peoples Republic of China (PRC) and the 71.56% stake owned by Central Hujin Investment Ltd., which is a wholly owned subsidiary of the PRCs sovereign wealth fund, the China Investment Corporation.
As a publicly listed company, China Re has favorable financial flexibility from the equity market and debt market. The group issued two senior notes, totaling USD 1.5 billion in 2017. In August and November 2018, China Re P&C and China Re Life also issued RMB 4 billion (USD 580 million) and RMB 5 billion (USD 720 million) capital supplementary bonds, respectively. A.M. Best expects the groups financial leverage to remain at a moderate level in fiscal year 2018. In addition to issuing debt, in April 2018, the group introduced strategic investors to China Continent Insurance, which raised capital of RMB 10.7 billion (USD 1.5 billion).
China Re maintains a solid leading position in the domestic reinsurance market, which is not expected to be challenged in the medium term, although there are new market entries. The groups international footprint is expanding gradually but remains limited; however, this is without considering consolidating the book of business from The Hanover Insurance Holdings Ltd., Chaucer Insurance Company Designated Activity Company and The Hanover Australia Holding Company Pty Ltd (collectively referred to as Chaucer), given the acquisition is pending regulatory approval.
The group has a track record of profitable operating results, mainly attributed to favorable investment income from fixed income investments. Underwriting profit remains challenging for direct and reinsurance property and casualty markets due to motor liberalization and intense market competition. The company is subject to policy risk from C-ROSS phase 2 implementation, which increases uncertainties on the reinsurance demands in the upcoming years.
China Res risk management capabilities are considered appropriate for its risk profile. Over the years, the companies have improved its pricing and modelling capabilities for underwriting and capital management. In addition, tools and systems enhancement was the focus in recent years to improve risk management efficiency.
Positive rating actions could occur if China Res global footprint significantly expands through successfully integrating with Chaucer, while managing its financial leverage and coverage ratio at a moderate level. Positive rating actions also could occur if China Re demonstrates sustained improvement in its underwriting profitability.
Negative rating actions could occur if China Res consolidated risk-adjusted capitalization decreases significantly or its leverage ratio increases significantly. Negative rating actions also could occur if there is ongoing deterioration in its 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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