กรุงเทพฯ--22 ธ.ค.--Standard & Poor's
SINGAPORE (Standard & Poor's) Dec. 22, 2014--Standard & Poor's RatingsServices today assigned its 'A+' long-term insurer financial strength andissuer credit ratings to China Reinsurance (Group) Corp. (China Re Corp.) andits core subsidiaries China Property & Casualty Reinsurance Co. Ltd. (China ReP&C) and China Life Reinsurance Co. Ltd. (China Re Life). The outlook isstable. At the same time, we assigned our 'cnAAA' long-term Greater Chinaregional scale rating to the three entities.
The ratings on China Re Corp. and its core subsidiaries reflect their 'a'group credit profile (GCP) and our assessment that there is a "high"likelihood that the insurers will receive extraordinary support from theChinese government.
We assess the China Re group's business risk profile as very strong and itsfinancial risk profile as upper adequate. We derive our GCP for the insurancegroup from a combination of these factors.
"We view China Re P&C and China Re Life as core subsidiaries of the group andbelieve that the potential government support would flow down to thesubsidiaries. For that reason, we equalize the ratings on China Re P&C andChina Re Life with that on China Re Corp.," said Standard & Poor's credit
analyst Connie Wong. Meanwhile, we believe that there is no structuralsubordination of China Re Corp. to the group because China Re Corp. is anoperating holding company, with premium income accounting for about 47% of itstotal revenue in the first half of 2014. Therefore, the ratings on China Re
Corp. reflect the group's credit profile without any notching.
We view China Re Corp. as a government-related entity. The Chinese centralgovernment owns 100% of the company via the Ministry of Finance and its armCentral Huijin Investment Co. Ltd.
"The China Re group's very strong competitive position reflects its reputation
as the largest reinsurer in China, its strong connection with the primaryinsurers, as well as its good operational diversity. The China Re group'smarket position is somewhat constrained by its lesser geographical diversity,technical support, and market knowhow outside China than key global reinsurersor reinsurance groups." Ms. Wong said.
We expect the combined ratio of the China Re group's P&C business to be about100%, which is in line with the market performance. Investment returns supportthe company's profitability.
The insurance risks in China are relatively short tail (predominantly motorinsurance, and other personal lines where claims are settled mostly within afew years of the start of the policy term). However, the potential unexpectedor unmodeled catastrophe risks due to continued urbanization and climatechanges in China are emerging risks, in our view.
We expect growth in the group's life reinsurance operation to remain strongand stable over the next 12-24 months.
We consider the China Re group's capital and earnings to be moderately strong.In our base case, we anticipate that the group's premiums will grow about 8%on average between 2014 and 2016, with return of equity at 7%-10%. We do notexpect significant volatility in performance over the next one to two years.The key risk charges for our capital analysis include market risks,underwriting, and catastrophe risks.
In our view, the China Re group has a moderate risk position, reflecting thepotential volatility in capital and earnings due to catastrophe risks, andconcentration risk in investments in financial institutions. China Re's lowerratio of catastrophe exposure to adjusted capital than international peers,thanks to its significant volume of motor business, helps it to maintain amoderate risk assessment. High P&C catastrophe risks contribute to the highrisk position of a number of the China Re group's international peers.
"The stable outlook reflects our view that the China Re group is likely tomaintain its competitive position and government linkages over the next twoyears," Ms. Wong said. At the same time, Standard & Poor's expects thecompany's capital and earnings to remain moderately strong and financial riskprofile to be upper adequate over the next two years despite potentialcatastrophe risks.
We may raise the ratings if: (1) the group's capital and earnings strengthenmaterially to a strong level; and (2) we raise the sovereign credit rating onChina (AA-/Stable/A-1+; cnAAA/cnA-1+).
We may lower the ratings if: (1) the group's capitalization and earningsdeteriorate to a upper adequate level or lower due to unexpected drop inunderwriting performance or profitability because of losses or volatility inthe investment portfolio; (2) the group's exposure to catastrophe risksincreases significantly amid its overseas development, leading to morevolatility in capital and earnings and a higher risk profile; (3) we lower thesovereign credit rating on China; or (4) China Re's relationship or importanceto the central government reduces.