AM Best confirms credit ratings from Blue Cross (Asia-Pacific) Insurance Limited
HONG KONG–(BUSINESS WIRE) –Preferably has confirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) from Blue Cross (Asia-Pacific) Insurance Limited (Blue Cross) (Hong Kong). The outlook for these credit ratings is stable.
The ratings reflect Blue Cross’s balance sheet strength, which AM Best rates as very strong, as well as the company’s strong operational performance, neutral business profile and appropriate risk management.
Blue Cross’s balance sheet strength is underpinned by its consolidated risk-adjusted capitalization, which is valued at the highest level as measured by Best’s BCAR, as well as its strong liquidity and low reinsurance reliance. The company pursues a prudent investment strategy with a large proportion of its invested assets invested in investment grade fixed income securities.
Blue Cross’s strong operational performance is evidenced by an AM Best calculated weighted average return on equity of 19.3% (2016-2020) over five years. The company reported net income after tax of HKD241.4 million, largely supported by stable investment income and improved underwriting performance, which resulted in a lower combined ratio of 80.8% in 2020 (2019: 94%) , 3%). Despite the premium decline in 2020, the company increased its underwriting profit due to lower claims frequency, particularly from the health insurance book, amid the COVID-19 environment. AM Best expects the one-off improvement in claims experience to return to a historic level that will normalize underwriting profit development in the short to medium term.
Blue Cross, a wholly owned subsidiary of The Bank of East Asia, Limited (BEA), maintained a strong presence in the general Hong Kong insurance market in 2020 and is among the top 20 insurers in terms of gross written premiums. In addition, due to its focus on health insurance services, it is one of the five leading insurers in the market in the accident and health insurance segment (A&H). In FY2020, the company’s underwriting portfolio consisted primarily of A&H business as the majority of the premium retained came from health insurance, which contributed over 80% of the total net written premium. AM Best views the company’s distribution network as diversified, with management proactively using technology initiatives in day-to-day business operations.
On March 24, 2021, Blue Cross entered into a portfolio transfer agreement that results in its remaining long-term life business portfolio being transferred to BEA Life Limited. The transfer is pending approval of the transfer scheme by the Hong Kong court.
The stable outlook reflects AM Best’s expectation that Blue Cross will maintain its very strong balance sheet valuation. The imminent transfer of the life insurance business is expected to have minimal impact on the overall credit fundamentals, which AM Best believes will remain high over the medium term.
Negative rating measures can occur if the risk-adjusted capitalization or the operational performance of the Blue Cross deteriorates significantly due to a decline in the operating result.
Ratings are communicated to the rated companies prior to publication. Unless otherwise stated, ratings have not been changed following this release.
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