A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Aioi Nissay Dowa Insurance (China) Company Limited (ADIC), both with stable outlooks.
The rating affirmations reflect ADIC’s “solid risk-adjusted capitalization and improved operating performance. The ratings also consider the continued parental support from Aioi Nissay Dowa Insurance Company Limited in the areas of business development, operations and reinsurance,” Best explained.
ADIC’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), “remains strong and supportive of the company’s current ratings. ADIC is well capitalized to support the projected business growth and the expenditures associated with its future branch expansion across China over the coming three years. Net premium leverage stood at 0.2 times in 2010 and is expected to reach 0.6 times by 2013.
“ADIC recorded a marginal profit of CNY 0.6 million [$943,470] for 2010, compared to an after-tax net loss of CNY 12.8 million [$2.013 million] for 2009, mainly due to a narrowed underwriting loss and a government subsidy received during the year. The company’s underwriting loss decreased to CNY 3.3 million [$518,909] for 2010, from a loss of CNY 16.9 million [$2.657 million] for 2009, primarily due to the release of reserves under favorable loss development on prior-year claims.”
Best also pointed out that the company’s “ultimate loss ratio for prior-year claims was lower than that of the industry average, which ADIC was using as the reserving benchmark in view of its limited claims experience. While the loss ratio is expected to be maintained at a stable level over the next three years,” Best said it believes “expense control will be the key for ADIC to improve its underwriting profitability, in addition to maintaining a disciplined underwriting practice in the mid to long term.”
In addition Best noted that with the support of its parent company, “ADIC commenced a co-insurance arrangement on individual motor insurance with Ping An Insurance within ADIC’s licensed regions in 2010. ADIC is expected to leverage on the strong relationship between its parent company and Toyota Motor Corporation to build up its motor portfolio going forward.
As partial offsetting factors Best cited “ADIC’s high expense ratio during its early stages of operation and the implementation risk of its business plan. ADIC’s operating cost is expected to accelerate over the next three years, in view of the start-up cost incurred for its planned branch expansion.
“Given the continuing competitive market conditions, any adverse deviation from its business plan could prolong the company’s targeted break-even period. Nevertheless, the projected business growth to be generated through the opening of new branches should partially alleviate the high expense ratio over the long term.”
Source: A.M. Best
Topics China
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