Best Assigns ‘A’ Ratings to China Re Group; Outlook Stable

A.M. Best Co. has assigned a financial strength rating of ‘A’ (Excellent) and issuer credit ratings of “a” to China Reinsurance (Group) Corporation (China Re or the Group) and its subsidiaries, China Property & Casualty Reinsurance Company Ltd (CPCR) and China Life Reinsurance Company Ltd (CLRC). The outlook for these ratings is stable.

The ratings reflect the Group’s “strong risk-adjusted capitalization, prudent reserving practice and leading business profile in China’s reinsurance market,” said Best. The ratings also recognize “continued support from the government of the People’s Republic of China through the Ministry of Finance, China Investment Corporation (CIC) and Central Huijin Investment Ltd (CHIL).”

In addition Best noted that the Group’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), “remains strong to support the risks underwritten and is enhanced by its liquid investment portfolio. The Group registered an increase of 11.8 percent in adjusted capital and surplus in 2009, due largely to improved underwriting results in property/casualty operations as well as the increase in market value of invested assets. The liquidity position of China Re remained strong, with more than 70 percent of total invested assets allocated to cash and fixed income securities as at year-end December 2009.

The net underwriting leverage (net premiums written/capital and surplus) stood at 0.91 times for 2009 (0.85 times for 2008).”

Best added that it “anticipates that China Re’s BCAR will remain strong over the near to midterm and supportive of projected business growth.”

A review of the loss development table, supports Best’s belief that the “Group’s outstanding claims reserves level is adequate. Non-life (property/casualty reinsurance and direct insurance) net outstanding reserves represented approximately 47 percent of the total net technical claims reserves at year-end 2009. And 62 percent of the property/casualty reinsurance claims reserves were allocated to incurred but not reported.”

As the only state-owned reinsurance group in China with an operating history of 60 years, “China Re’s business profile has been well established in the country,” Best continued. “In addition, the Group offers diversified products of property/casualty and life reinsurance, direct insurance and asset management. A.M. Best believes that the Group remains well positioned in the local market.

As offsetting factors Best cited the Group’s “developing enterprise risk management (ERM) program, potential capital demand from its core subsidiaries and competitive market conditions.”

Best added that although it recognizes the Group’s “initiatives and management’s involvement to enhance its ERM, its program is considered to be weak, relative to other global reinsurers with similar levels of capitalization.” The rating g agency therefore indicated that it “remains cautious concerning the long-term effectiveness of the Group’s ERM, which can only be proven over time.”

As far as capitalization is concerned, Best noted that in light of “robust premium growth in its direct insurance portfolio, current capitalization level of CPCR and consideration of potential strategic investments, China Re may need to infuse more capital into the subsidiaries to support their prospective business growth and for future strategic investments. This could exert pressure on the Group’s overall capitalization going forward.”

Source: A.M. Best