A.M. Best Co. has assigned a financial strength rating of A (Excellent) and an issuer credit rating of "a" to BOC Group Life Assurance Company Limited (BOCG Life) (Hong Kong).
The outlook for both ratings is stable.
The ratings reflect BOCG Life's business collaboration and support from Bank of China Limited (BOC) and its subsidiaries, one of the largest state-owned banking groups in China. The BOC group provided capital support to BOCG Life in 2008-2009. BOCG Life's products are distributed through a wide banking network and customer base of the group in Hong Kong with low expenses and acquisition costs.
BOCG Life demonstrates high efficiency to implement its business strategy. Since 2008, the company's sales have grown rapidly to make it the top insurer in the non-investment-linked market with over 20 percent market share of new business in Hong Kong in the past two years. The company has improved its flagship endowment products to gradually increase the value of business. Management also implemented many proper measures to enhance asset and liability management for reducing volatility in its operations.
The dominating position of BOCG Life in the fast-growing domestic Renminbi (RMB) life insurance market is also a positive rating factor. The product innovation with advantages in onshore RMB investment channels will continue to contribute to the company's growth in this sector. The large business volume also enables BOCG Life to have favorable negotiations with business partners.
These positive rating factors are partially offset by BOCG Life's thin buffer level in its statutory solvency ratio. Although measures were in place to decrease volatility in the solvency ratio, the solvency ratio maintained in BOCG Life was lower than its peers. The major portion of business from savings products also led to a low profit margin and large exposure to market risk, compared with long- term protection and investment-linked products. Unexpected or extreme market events may materially reduce capital adequacy. The current historical low interest rate environment also created challenges for the company to maintain its target investment yield and to develop longer-term products with better value of business. It will take more time for BOCG Life to balance the product package further.
While the ratings for BOCG Life are stable, positive rating actions may result from enhanced profitability of new business with greater product diversity, in conjunction with strengthened risk- adjusted capitalization. However, downward rating pressure could arise if there is a significant deterioration in the company's risk- adjusted capitalization in the event of adverse financial market movements.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Understanding Universal BCAR" and "Risk Management and the Rating Process for Insurance Companies." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/ methodology.
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