A.M. Best Affirms Ratings of BOC Group Life Assurance Company Limited [Manufacturing Close – Up]

A.M. Best Asia-Pacific Limited has affirmed the financial strength rating of A (Excellent) and issuer credit rating of "a" of BOC Group Life Assurance Company Limited (BOCGL) (Hong Kong).

The outlook for both ratings is stable.

The ratings of BOCGL reflect its improved capitalization and leading market position in Hong Kong. The ratings also recognize the strong operational and capital support provided by its banking parent, BOC Hong Kong (Holdings) Limited (BOCHK). BOCGL generates business mainly via bancassurance channels established within the BOCHK banking network in Hong Kong.

BOCGL has enhanced its risk-adjusted capitalization and local solvency mainly through its enlarged capital and surplus, which is attributable to its improved investment earnings. The reduction of its investment risk has significantly improved its risk-adjusted capital position. As a pioneer in the Renminbi (RMB)-denominated life insurance in Hong Kong, BOCGL's co-insurance arrangement with a leading reinsurer in China, provides it with the capacity to achieve economies of scale through sizeable business volume with manageable market risk.

Offsetting these positive rating factors include the extended counterparty risk arising from the shift of product mix and potential volatility in BOCGL's regulatory solvency. While BOCGL improved its premium mix by diversifying into longer-term RMB products, its counterparty exposure could be prolonged as most RMB products are ceded out to a single reinsurer. Notwithstanding, appropriate measures are in place to mitigate such counterparty risk. Currently, BOCGL's premium mix is comprised largely of short to medium-term savings products, and its regulatory solvency is expected to be exposed to volatility arising from policy reserves of interest-sensitive products given its moderate solvency buffer.

Positive rating actions may occur if BOCGL manages to improve the profitability of its new business and product mix while maintaining a strong business profile. 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 and heightened counterparty risk.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides an explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process.

A.M. Best Asia-Pacific Limited is a subsidiary of A.M. Best Company.

A.M. Best Company is an insurance rating and information source.

More Information:

http://www.ambest.com

Best's Credit Rating Methodology:

http://www.ambest.com/ratings/methodology

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