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Fitch Affirms China United Property Insurance at 'A-'; Outlook Stable
June 2, 2017 / 7:07 AM / 6 months ago

Fitch Affirms China United Property Insurance at 'A-'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, June 02 (Fitch) Fitch Ratings has affirmed China United Property Insurance Company Limited's (CUPI) Insurer Financial Strength Rating (IFS) at 'A-' (Strong). The Outlook is Stable. KEY RATING DRIVERS The rating is based on CUPI's ownership by China Orient Asset Management Co., Ltd. (COAM, A/Stable), which adds a one notch uplift to Fitch's standalone assessment of CUPI. The standalone assessment reflects CUPI's improving regulatory solvency buffer, its competitive edge in agricultural insurance, the use of reinsurance to mitigate underwriting volatility and its record of operating profitability. The rating also recognises the company's volatile operating result, competitive pressure on its primary business of motor insurance and higher financial leverage. CUPI is ultimately owned by COAM, which controls CUPI through its 51% shareholding in China United Insurance Holdings Company Limited (CUIH), which in turn has a 87.93% shareholding in CUPI. Fitch expects COAM, a state-owned entity, to provide support via asset management and capital to CUPI as the insurer continues to grow. CUPI has adequate capitalisation and leverage. The company's comprehensive solvency ratio calculated under China's Risk Oriented Solvency System (C-ROSS) improved to 291% at end-2016, from 213% in the previous year. CUPI issued CNY6 billion in subordinated debt to strengthen its regulatory capital position in 4Q16, however, this increased its financial leverage to about 31% at end-2016 (end-2015: zero leverage). The company's capital buffer, as measured by the capital score computed by Fitch's Prism Factor-Based Capital Model (Prism FBM), and net premium leverage remains small, despite the improved solvency adequacy. The company's Prism FBM capital score was still in the 'adequate' category at end-2016, while its net premium leverage in 2016 was about 2.7x, which is weaker than the median guideline for IFS 'BBB' rated non-life insurers. Fitch views CUPI's financial performance and earnings as strong, despite its underwriting volatility. The company reported a decline in its 2016 underwriting margin, partially due to claim payments from a severe fire in 2013 following the conclusion of a lawsuit. Nonetheless, its average combined ratio over the previous three years was 98.9%, stronger than the IFS 'A' rated insurer median guideline. The implementation of commercial motor insurance pricing deregulation also weakened its 2016 underwriting result. CUPI's combined ratio increased to 102.8%, from 99.2% in 2015. CUPI has stopped underwriting commercial used-motor insurance policies with poor underwriting results to improve business quality. CUPI is China's fifth-largest non-life insurer, with a 2016 market share of 4.2% by total direct written premiums. The company has actively participated in underwriting policy-supported agricultural insurance since its establishment in 1986. Fitch expects CUPI to continue to be the core earning source for CUIH. CUPI continues to rely on reinsurance to support its underwriting capacity and alleviate its catastrophe exposure, given its business focus and capital base. The company ceded out about 7% of its premiums to a portfolio of reinsurers with sound credit quality. Most of its lead reinsurers carry an IFS Rating of at least 'A-'. CUPI's risky asset exposure remains manageable, although it has further increased its exposure to less-liquid alternative investments. Investments in trust schemes, infrastructure debt schemes, wealth management products and funds managed by insurers' asset management companies accounted for about 32% of its investments and 114% of its shareholders' equity at end-2016. RATING SENSITIVITIES Downgrade rating triggers include: - a dramatic change in the ownership structure, with COAM losing its controlling stake in CUPI through CUIH; - deterioration in CUPI's capital score, as measured by Fitch's Prism Factor-Based Capital Model (Prism FBM), to below 'adequate' or a comprehensive solvency ratio, computed under China's Risk Oriented Solvency System, lower than 200% for a prolonged period; - weaker underwriting profitability, with a combined ratio consistently higher than 103%, for a sustained period; or - an escalation in the company's financial leverage to above 35%. An upgrade is unlikely in the near term, given CUPI's small capital buffer as measured by its Prism FBM score and its credit metrics. Over the medium term, rating upgrade triggers include: - an improved capital score in terms of the Prism FBM to 'strong' or higher; - strengthened operating stability, with a combined ratio below 97% on a sustained basis; and - financial leverage maintained at below 25%. Contact: Primary Analyst Terrence Wong Director +852 2263 9920 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Jeffrey Liew Senior Director +852 2263 9939 Committee Chairperson Wan Siew Wai Senior Director +65 6796 7217 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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