A.M. Best Affirms Ratings of Hong Leong Insurance (Asia) Limited

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Hong Leong Insurance (Asia) Limited (Hong Leong Insurance) (Hong Kong). The outlook for both ratings is stable.

The ratings reflect Hong Leong Insurance’s consistently profitable underwriting performance, strong risk-adjusted capitalization and liquid investment portfolio. The company is a strategic subsidiary within Hong Leong Group, and A.M. Best recognizes the operational synergy in terms of investment and administrative support.

Hong Leong Insurance’s sound underwriting performance was evidenced by its average net combined ratio of 91.3% during fiscal years 2005 to 2009. Both the loss ratio and expense ratio improved in fiscal year 2009, leading to a decrease in the combined ratio to 87.6% in fiscal year 2009 from 92.5% in the previous year. Going forward, A.M. Best expects that Hong Leong Insurance’s underwriting result will remain profitable over the near term, given the company’s disciplined underwriting practice and the quality of its insurance portfolio, particularly in personal lines.

Hong Leong Insurance’s risk-adjusted capitalization remained favorable in fiscal year 2009, as measured by Best’s Capital Adequacy Ratio (BCAR), although the high dividend payout to Allstate Health Benefits Sdn Bhd as a result of the group’s restructuring in 2009 reduced the level of the company’s surplus. In consideration of Hong Leong Insurance’s historically high retention of operating profit and stable underwriting earnings, it is expected that the company’s risk-adjusted capitalization will remain solid over the near to mid term.

Offsetting factors include Hong Leong Insurance’s unfavorable investment performance in fiscal year 2009, and the potential volatility in its operating earnings associated with its equity investments exposure and currency exposure.

In fiscal year 2009, Hong Leong Insurance suffered an investment loss of HKD 15.8 million (approximately USD 2 million), compared to a loss of HKD 1.5 million (approximately USD 0.2 million) in the previous fiscal year, mainly due to high realized losses from its listed equities investments and exchange losses that originated from its overseas investments throughout 2009. In view of the company’s investment approach, A.M. Best believes that Hong Leong Insurance’s earnings stability will be subject to a level of exposures in both equities and foreign currency going forward.

In affirming the ratings of Hong Leong Insurance, A.M. Best reviewed the financial statement of its parent, Hong Leong Financial Group Berhad, as well as other public information available including public credit ratings. This review supports Hong Leong Insurance’s current ratings.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at http://www.ambest.com/ratings/methodology.