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

KEY RATING DRIVERS

ABCI is rated one-notch above its standalone credit profile, reflecting its operating synergies and capital contribution from its ultimate parent, Agricultural Bank of China Limited (ABC, Long-Term Issuer Default Rating: A/Stable). ABCI's standalone rating considers the company's strong capitalisation and favourable operating performance. However, the rating also factors in company's small market share in Hong Kong non-life insurance industry (0.5% in terms of gross premium written in 2015) and catastrophe exposures in China.

Fitch expects ABCI to maintain sufficient capital buffer, in part due to capital contribution from ABC, to support its growth and potential underwriting volatility. The company's risk-based capital, as measured by Fitch's Prism Factor Based Model (FBM), stood at 'Very Strong' based on ABCI's 2015 results. The company is trying to underwrite more business in China through ABC's banking network across the country. ABC plans to inject more capital in the near future to support ABCI's growth, following the HKD238m of capital injection in 2015.

ABCI's operating performance has been favourable due to the low loss ratio and high net commission income from the inward reinsurance business in China. Gross loss ratio was 40% in 2015 versus 66% in 2014, despite weak underwriting results from statutory employee compensation business in Hong Kong. However, underwriting performance has been volatile because of its small portfolio.

ABCI has significant exposure to earthquake risks and typhoon risks in China and relies heavily on reinsurance arrangements to mitigate these risks. Fitch expects ABCI to further enhance its reinsurance arrangements to protect against potential catastrophe losses.

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:

- Fitch's assessment that support from ABC has diminished

- Negative rating action on ABC

- Decline in its capital score as measured by Prism FBM to below 'Strong' for a prolonged period of time

- ABC's inability to complete a planned capital infusion

- Dramatic shift in ABCI's investment strategy towards risky assets