OREANDA-NEWS. Fitch Ratings has affirmed China-based Yingda Taihe Property Insurance Co. Ltd's (YDPIC) Insurer Financial Strength Rating of 'A-'. The Outlook is Stable.

KEY RATING DRIVERS

The affirmation reflects the insurer's ability to maintain profitable operations and steadily improve its capitalisation. Its rating recognises a one-notch uplift above its standalone assessment from its 99.4%-ownership by the State Grid Corporation of China (SGCC, A+/Stable), a state-owned electricity utility. SGCC owns the insurer through a portfolio of fully owned subsidiaries, including Yingda International Holdings Group Limited.

Fitch expects YDPIC to continue sourcing a large portion of its quality business through SGCC. Underwriting results of business originated from SGCC are favorable, mitigating underwriting losses from competitive compulsory third-party motor insurance. Fitch believes that it is difficult for YDPIC to enhance the underwriting profitability of its motor insurance portfolio, given its limited operating scale. The insurer's overall underwriting margin remains stable, despite a slight deterioration in its 2015 claim ratio due to the compulsory third party motor insurance. YDPIC's combined ratio was 92% in 1H16 (2015: 101%) based on unaudited financial statements.

YDPIC improved its capitalisation in terms of net premium leverage in 2015. Ongoing surplus generation and slower net premium growth enabled the insurer to lower its net premium leverage to 1.7x in 2015, from 2.1x in 2014. The company's statutory capital ratio was about 152% in 1H16, higher than the 100% regulatory minimum, as calculated under China's Risk Oriented Solvency System (C-ROSS) framework.

Fitch expects YDPIC to maintain an adequate capital buffer to withstand extreme underwriting volatility from its large exposure to commercial property insurance. The company's capital score, calculated under Fitch's Prism Factor Based Capital Model, was in the 'Adequate' category in 2015. YDPIC depends on reinsurance to strengthen its underwriting capacity and mitigate its underwriting volatility due to its moderate capital buffer. Its risk cession ratio was about 12% in 2015. The company increased the protection limits of its non-marine catastrophe excess-of-loss reinsurance treaty in 2016 in consideration of its catastrophe risk exposure.

YDPIC maintains stable liquidity to meet cash outflows associated with claims from its short-tailed insurance liabilities. Its holding of liquid assets accounted for about 117% of the net claims reserve in 2015.

RATING SENSITIVITIES

Downgrade rating triggers include:

- a dramatic change in the shareholding structure, with SGCC losing its controlling stake in YDPIC

- sustained decline in YDPIC's underwriting margin, with a combined ratio higher than 105%

- an increase in the insurer's catastrophe exposure due to inadequate reinsurance protection

- a deterioration in YDPIC's capital buffer, with the company's capital score based on Fitch's Prism Factor Based Capital Model falling below 'Adequate' on a sustained basis.

Upgrade rating triggers include YDPIC's ability to:

- improve its Prism Factor Based Capital Model score to 'Strong' or higher

- strengthen its underwriting stability, with a combined ratio persistently below 95%, and

- broaden its distribution coverage.