OREANDA-NEWS. Fitch Ratings has assigned Hong Kong-based ABCI Insurance Company Limited (ABCI) an Insurer Financial Strength Rating (IFS) of 'A-'. The Outlook is Stable.

KEY RATING DRIVERS

ABCI's rating benefits from a one-notch uplift above its standalone credit profile, reflecting the operation synergies and capital contribution from its ultimate parent China's Agricultural Bank of China Limited (ABC, Long Term Issuer Default Rating: A/Stable). ABCI's standalone rating also considers the company's strong capitalisation and favourable operating performance.

The company plans to underwrite more business in China by tapping the extensive banking networks of ABC. ABC injected HKD238m of capital in May 2015 and plans to inject fresh capital in the near future to support ABCI's business growth.

Fitch expects ABCI to maintain sufficient capital buffer to support its planned growth and potential underwriting volatility. Fitch expects ABCI to enhance its reinsurance arrangement to protect against potential catastrophe losses under the 1-in-250 years return period.

ABCI's operating performance has been favourable due to the low loss ratio and high net commission income. However, underwriting performance has been volatile because of its small portfolio.

One of the key rating constraints for ABCI is its small operating scale despite premium growth over the last five years. ABCI's market share in the Hong Kong non-life insurance industry was 0.5% in terms of gross premium written in 2014.

The rating also factors in its exposure to catastrophe risks in China. ABCI relies on reinsurance arrangements to mitigate its catastrophe exposures in China. The company recently increased its catastrophe reinsurance protection after a comprehensive review of its catastrophe exposure.

RATING SENSITIVITIES

A rating upgrade is unlikely for ABCI in the near term, given its existing operating profile and market position.

Downgrade rating triggers include:
- Diminished support from ABC in Fitch's view,
- Negative rating action on ABC,
- Decline in its capital score as measured by Prism FBM to below 'Strong' for a prolonged period of time,
- Inability to complete planned capital infusion, and
- Dramatic shift in its investment strategy.