OREANDA-NEWS. Fitch Ratings has affirmed China-based Sunshine Property & Casualty Insurance Company's (SPCI) Insurer Financial Strength Rating (IFS) of 'A'. The Outlook is Stable.

KEY RATING DRIVERS

The rating affirmation reflects SPCI's ongoing premium expansion, improving underwriting results and strengthening capitalisation. The rating also takes into consideration the sound financial flexibility of Sunshine Insurance Group Company Limited (SIG) after the capital infusion of CNY16bn in 2015. Fitch views SPCI as a core operating subsidiary within SIG, which can provide capital support to SPCI, if needed.

In 2015 SIG infused CNY1.9bn capital into SPCI to support its ongoing business expansion. Fresh capital and a strong surplus materially strengthened SPCI's capital buffer, with its net premium leverage dropping to 2.23x at the end of 2015 from 2.82x a year earlier. Fitch expects SPCI to maintain an adequate solvency buffer to support underwriting risks.

Fitch expects SPCI to continue growing in the near term, given its wide distribution network throughout China. The company grew 22.1% in terms of gross premiums in 2015, exceeding the market average of 11.6%. SPCI remains the seventh largest non-life insurer in China by direct written premiums in 2015, while its market share increased to 3.1% in 2015 from 2.8% in the previous year.

Key rating constraints for SPCI include strong competition and further motor insurance pricing liberalisation. Fitch expects small- to mid-sized insurers with high exposure to the competitive motor insurance segment to report volatile underwriting results, as the Chinese insurance regulator has decided to include more regions in a trial to deregulate commercial motor pricing from January 2016. Motor business premiums accounted for about 76% of SPCI's gross premiums written in 2015.

SPCI has accumulated an insurance portfolio with a favourable loss ratio and has further improved its underwriting margin in 2015, despite strong market rivalry and high growth. Better claim experience further reduced SPCI's combined ratio to 95.2% in 2015 from 96.9% a year earlier.

RATING SENSITIVITIES

Downgrade rating triggers include:

- SIG's consolidated capital score consistently below the 'Strong' category, as measured by Fitch Prism Factor Based Model (FBM);
- an increase in SIG's financial leverage on a consolidated basis to higher than 35% for a prolonged period;
- deterioration in SPCI's combined ratio to more than 103% and a sustained decline in the operating profitability of Sunshine Life Insurance Corporation Limited (SLI), a key affiliate within SIG, with SIG's interest coverage consistently below 5x (2015: about 11x).

An upgrade of SPCI's IFS rating is unlikely in the short term, given the group's existing credit fundamentals. However, the long-term upgrade rating triggers over the medium to include:

- SIG's ability to keep its capitalisation with a capital score of at least 'Strong', as measured by Prism FBM;
- SIG's ability to consistently maintain its consolidated financial leverage below 20%;
- a decrease in SPCI's combined ratio to less than 95% on a consistent basis and SLI's ability to continue expanding its existing and new business, with SIG's interest coverage persistently higher than 10x.