AM Best Affirms Credit Ratings of ZhongAn Online P & C Insurance Co., Ltd.

NOVEMBER 08, 2024 08:00 AM (EST)

AM Best Affirms Credit Ratings of ZhongAn Online P & C Insurance Co., Ltd.

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FOR IMMEDIATE RELEASE

HONG KONG - NOVEMBER 08, 2024 08:00 AM (EST)
AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of "a-" (Excellent) of ZhongAn Online P & C Insurance Co., Ltd. (ZhongAn) (China). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect ZhongAn's balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, favourable business profile and appropriate enterprise risk management.

ZhongAn's very strong balance sheet strength assessment is supported by its risk-adjusted capitalisation at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR). Under the HKFRS 17 accounting standard, the company's capital and surplus reported good growth and reached RMB 20.07 billion (USD 2.84 billion) at year-end 2023, driven by an increase in retained earnings due to the one-off investment gain recognized when ZhongAn Technologies International Group ceased to be a subsidiary of the company and was accounted for as a joint venture from August 14, 2023. ZhongAn's investment portfolio remains liquid and diversified, with the majority allocated to fixed-income type of assets, cash and cash equivalents. As a publicly listed company on the Hong Kong Stock Exchange, coupled with the issuance of its USD-denominated senior unsecured notes in 2020, ZhongAn has demonstrated steady access to debt and equity markets that enhances its financial flexibility.

ZhongAn's operating performance has exhibited volatility over the last few years. While the company turned around its results and reported net profits in 2020 and 2021, it suffered a net loss in 2022, due to unfavourable investment results amid volatile market conditions, foreign exchange losses and adoption of HKFRS 9. The company swung back into a net profit of RMB 3.85 billion in 2023, primarily attributed to the aforementioned one-off gain of RMB 3.78 billion from the deconsolidation of an affiliated investment. In terms of underwriting, ZhongAn's P&C insurance business has become profitable since 2021, with stablisation in its combined ratio. Notwithstanding, the bottom line continues to face negative pressure stemming from non-insurance businesses, predominantly banking and technology, over the last few years. Going forward, excluding the one-off investment gain, AM Best views ZhongAn's operating performance as remaining subject to investment volatility, as well as the business risk in the turnaround strategies of its banking and technology segments.

ZhongAn is the first online-only P&C insurance company in China. In 2023, the company increased its marekt share to 1.9% in terms of direct premiums written and was ranked ninth in China's P&C sector. Its distribution channel and underwriting portfolio have been diversified. The company's major business lines include health and accident, shipping return, credit and guarantee and motor. AM Best views ZhongAn as an innovative industry leader, which provides solid support to AM Best's favourable business profile. The company has leveraged its technology capability to underwrite and distribute insurance policies. Additionally, ZhongAn exports technology service to domestic and overseas clients from various industries including insurance, internet platforms, banking and securities brokerage. The company's revenue from technology has achieved substantial growth over the years with an expanding client base. AM Best expects ZhongAn to continue benefiting from its innovative capability and to integrate such capability into its insurance operations.

Positive rating actions could occur if ZhongAn demonstrates sustained improvement in its operating performance with stablisation of underwriting profit margin and successful business execution of its non-insurance operations, while without being exposed to unfavourable volatility in its investment results, albeit unlikely in the short term for 12 -18 months. Negative rating actions could occur if there is significant adverse deviation from ZhongAn's business plan, or if there is a material decline in its risk-adjusted capitalisation due to faster-than-expected growth in underwriting or asset risks. Negative rating actions also may arise if the company's partnerships with key shareholders weaken such that it no longer supports a favourable business profile assessment.

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

This press release relates to Credit Ratings that have been published on AM Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best's Credit Ratings, Best's Performance Assessments, Best's Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best's Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.