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Stella Ng
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Rachelle Morrow
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Jim Peavy
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FOR IMMEDIATE RELEASE
HONG KONG, JULY 26, 2010
A.M. Best Co. has assigned a financial strength rating of A (Excellent) and issuer credit ratings of "a" to China Reinsurance (Group) Corporation (China Re or the Group) and its subsidiaries, China Property & Casualty Reinsurance Company Ltd (CPCR) and China Life Reinsurance Company Ltd (CLRC). The outlook for these ratings is stable. All companies are domiciled in China.
The ratings reflect the Group's strong risk-adjusted capitalization, prudent reserving practice and leading business profile in China's reinsurance market. In addition, the ratings also recognize continued support from the government of the People's Republic of China through the Ministry of Finance, China Investment Corporation (CIC) and Central Huijin Investment Ltd (CHIL).
The Group's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), remains strong to support the risks underwritten and is enhanced by its liquid investment portfolio. The Group registered an increase of 11.8% in adjusted capital and surplus in 2009, due largely to improved underwriting results in property/casualty operations as well as the increase in market value of invested assets. The liquidity position of China Re remained strong, with more than 70% of total invested assets allocated to cash and fixed income securities as at year-end December 2009. The net underwriting leverage (net premiums written/capital and surplus) stood at 0.91 times for 2009 (0.85 times for 2008). A.M. Best anticipates that China Re's BCAR will remain strong over the near to mid term and supportive of projected business growth.
By reviewing the loss development table of China Re, A.M. Best believes the Group's outstanding claims reserves level is adequate. Non-life (property/casualty reinsurance and direct insurance) net outstanding reserves represented approximately 47% of the total net technical claims reserves at year-end 2009. And 62% of the property/casualty reinsurance claims reserves were allocated to incurred but not reported.
As the only state-owned reinsurance group in China with an operating history of 60 years, China Re's business profile has been well established in the country. In addition, the Group offers diversified products of property/casualty and life reinsurance, direct insurance and asset management. A.M. Best believes that the Group remains well positioned in the local market.
These positive factors are somewhat offset by the Group's developing enterprise risk management (ERM) program, potential capital demand from its core subsidiaries and competitive market conditions.
Although A.M. Best recognizes the Group's initiatives and management's involvement to enhance its ERM, its program is considered to be weak, relative to other global reinsurers with similar levels of capitalization. A.M. Best remains cautious concerning the long-term effectiveness of the Group's ERM, which can only be proven over time.
In light of robust premium growth in its direct insurance portfolio, current capitalization level of CPCR and consideration of potential strategic investments, China Re may need to infuse more capital into the subsidiaries to support their prospective business growth and for future strategic investments. This could exert pressure on the Group's overall capitalization going forward.
For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit Best's Ratings & Analysis.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at Best's Credit Rating Methodology.
