AM Best Affirms Credit Ratings of Hong Leong Insurance (Asia) Limited

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

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

HLIA's very strong balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR). The company maintained low underwriting leverage and mild growth in capital and surplus (C&S) over the past five fiscal years. Offsetting factors include its modest C&S level, moderate dependency on reinsurance and investment concentration in real estate properties.

HLIA's strong operating performance is supported by its better-than-average underwriting profitability. The company reported double-digit growth in gross premium written in the fiscal year that ended 30 June 2023, supported by recovery of travel insurance following the removal of COVID-19-related travel restrictions. Going forward, AM Best expects HLIA to benefit from good growth momentum in its top line and improved operational efficiency, which should help to stablise the underwriting margin and contribute to higher earnings as the portfolio grows. While the company's investment performance experienced negative capital market volatility in fiscal year end 30 June 2023, the impact was partially mitigated by the more stable investment income sourced from listed equity dividends and rental income.

The company's business profile is assessed as limited. HLIA's presence in Hong Kong's general insurance market is small but its market share remains stable. Historically, the company has focused on personal lines, including travel and domestic helper insurance via direct sales; however, in more recent years, HLIA has expanded its portfolio into commercial lines via the broker channel. Other successful initiatives include the cross-selling of personal insurance to its existing client base, and digitalisation of underwriting and claim process to improve customer experience and increase client retention.

Negative rating actions could occur if HLIA experiences sustained negative operating performance below the market average; for example, due to consistently material lower investment yields or a diminished underwriting margin. Negative rating actions also could occur if there is significant deterioration in the company's risk-adjusted capitalisation. A deterioration in the credit profile of HLIA's parent companies, Hong Leong Financial Group Berhad and Hong Leong Company (Malaysia) Berhad, also may have a negative impact on HLIA's ratings. Although not likely in the short to medium term, positive rating actions could occur if HLIA achieves material improvement in business profile; for example, a significant strengthening of its market position, while maintaining strong 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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