AM Best Affirms Credit Ratings of Macau Insurance Company Limited

AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of "a-" (Excellent) of Macau Insurance Company Limited (MIC) (Macau). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect MIC's balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

MIC's balance sheet strength continues to be supported by its risk-adjusted capitalisation as of year-end 2022, which remained at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR). The company's capital and surplus (C&S) decreased by 10% to MOP 965 million in 2022, mainly driven by significant unrealised capital losses from equity investments measured at fair value through other comprehensive income amid the volatile capital market conditions. Although MIC's strategic asset allocation reflects an appetite to invest in equity securities, which exposes its overall earnings to equity market volatilities, the downside risks are mitigated partially by the company's active hedging strategy and surplus capital.

According to its capital plan, MIC will pay MOP 309 million in dividends to the ultimate parent, Dah Sing Financial Holdings Limited, in three installments in 2023 and 2024. While the amount accounts for approximately one-third of the company's C&S in 2022, AM Best expects that based on MIC's business plan, the company's risk-adjusted capitalisation will remain solid to keep pace with the change and manage its underwriting and investment risks.

MIC continues to rank third in Macau's non-life insurance market, with a market share of 9.7% in terms of gross premiums written; however, its market share has gradually declined over the last few years as the COVID-19 pandemic caused a severe disruption to economic activities, in particular to that of small to medium-sized enterprises. The company's underwriting portfolio remained moderately diversified with major lines of business in property, employees' compensation, motor, contractor-all-risks and medical. Overall combined ratio increased five percentage points to 94%, but still stayed at a healthy level. The uptick was mainly caused by a deterioration in loss ratio as a result of a normalisation of claim frequency after the pandemic, as well as a one-off provision for adverse deviation booked for motor business to satisfy new statutory requirement. Nevertheless, AM Best expects MIC to continue with its business plan to maintain underwriting profitability through expanding its more profitable business with higher net retention, tightening underwriting practices for unprofitable business, actively managing claims costs, enhancing digital capabilities and improving operational efficiency.

Negative rating actions could arise if MIC's business profile exhibits a sustained diminishing trend that materially deviates from its indicated plans. Negative rating actions could also occur if there is a significant decline in MIC's risk-adjusted capitalisation due to material investment losses or larger-than-expected dividend payouts, or a material deterioration in its operating performance due to unfavourable underwriting or investment results. Positive rating actions could occur if MIC demonstrates successful implementation of its business plan to achieve sustained improvement and stability in its operating performance, while maintaining a robust level of risk-adjusted capitalisation.

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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