AM Best Affirms Credit Ratings of Tugu Insurance Company Limited
HONG KONG--(BUSINESS WIRE)--Feb 28, 2019--AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Tugu Insurance Company Limited (TIC) (Hong Kong). The outlook of these Credit Ratings (ratings) is negative.
The ratings reflect TIC’s balance sheet strength, which AM Best categorizes as strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.
The company’s strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is supported by its low underwriting leverage. Offsetting factors are the company’s high asset concentration and low on-balance-sheet liquidity. These factors resulted from the company’s high asset concentration in a small number of invested properties, which accounted for half of total assets at the end of 2018.
TIC is a small non-life insurer in Hong Kong. Premium volume has declined sharply over the past five years as the company discontinued some unprofitable business in Hong Kong and increased its reinsurance cession. As a result of having a small net premium base, the high expense ratios increased over the same period. In 2018, TIC reported an underwriting profit mainly contributed by a reserve release. AM Best believes that a similar scale of reserve release is unlikely to repeat year-over-year, so the operating profitability will remain dependent on investment income.
The company applies basic tools in risk management, such as investment and underwriting guidelines. Nevertheless, capabilities are lacking in areas such as underwriting, strategy and reserving, the last of which has a track record of volatility.
The negative outlooks are based primarily on uncertainty regarding TIC’s capitalization and business profile. It also reflects the company’s low liquidity buffers.
Positive rating actions are unlikely in the near term. Negative rating actions could occur if there is a material decline in the company’s risk-adjusted capitalization and liquidity position, or if the company’s business volume shrinks materially.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings . For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases .
AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.
Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
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CONTACT: Sergio Hidenori Agena
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KEYWORD: UNITED STATES EUROPE ASIA PACIFIC NORTH AMERICA SINGAPORE HONG KONG
INDUSTRY KEYWORD: PROFESSIONAL SERVICES INSURANCE
SOURCE: AM Best
Copyright Business Wire 2019.
PUB: 02/28/2019 12:28 PM/DISC: 02/28/2019 12:28 PM