AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Sun Hung Kai Properties Insurance Limited (SHKPI) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect SHKPI’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

SHKPI’s very strong balance sheet strength assessment is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s higher-risk financial assets, including unlisted investments and non-investment-grade bonds, exposed its risk-adjusted capitalisation to considerable market and credit risks. Nonetheless, the company has de-risked the majority of its bond exposure to mainland China’s real estate sector in fiscal year 2023, with its bond portfolio demonstrating an improvement in the credit quality with higher diversification level. AM Best considers SHKPI’s capital level provides a sufficient buffer to absorb investment risks. Other supporting factors include the company’s strong liquidity position and appropriate reinsurance programme, with a diversified panel of financially sound reinsurers.

SHKPI has consistently delivered a strong operating performance over the past few years. Its net profit in fiscal year 2023 was a combined result of a recovery in investment performance and stable underwriting profit. SHKPI continues to benefit from its parent company’s support, both in distribution channels with minimal gross acquisition expenses as well as in access to better quality group business, leading to its favourable underwriting results. The company’s investment returns turned positive in fiscal year 2023, mainly driven by favourable interest income owing to a high interest rate environment.

SHKPI is a wholly owned subsidiary of Sun Hung Kai Properties Limited, one of the largest property development and investment conglomerates in Hong Kong. It benefits from its parental network to write a major part of its business from associated and subsidiary companies. The company continues to operate in a low acquisition cost business model while seeking new business opportunities within the market. SHKPI maintains a small albeit profitable presence in Hong Kong’s general insurance market, focusing on employees’ compensation insurance on a net premiums written basis.

Negative rating actions could occur if there is significant deterioration in SHKPI’s operating performance; for example, due to lower investment returns or weakened underwriting results. Negative rating actions also could arise if there is a significant deterioration in SHKPI's risk-adjusted capitalisation, for example, due to material investment losses. Although it is unlikely in the near term, positive rating actions could arise if there is significant improvement in SHKPI's risk-adjusted capitalisation, for example, due to further improvements in asset quality and capital size.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

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