AM Best Revises Outlooks to Negative for Hyundai Insurance (China) Co., Ltd.

AUGUST 02, 2024 08:32 AM (EDT)

AM Best Revises Outlooks to Negative for Hyundai Insurance (China) Co., Ltd.

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FOR IMMEDIATE RELEASE

HONG KONG - AUGUST 02, 2024 08:32 AM (EDT)
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of "bbb" (Good) of Hyundai Insurance (China) Co., Ltd. (HIC) (China).

The Credit Ratings (ratings) reflect HIC's balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

The negative outlooks reflect the projected fast deteriorating trend in HIC's risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), due to the combined effect of elevating underwriting risk and expected capital erosion from cumulative operating losses over the short to intermediate term.

HIC's risk-adjusted capitalisation remained at the strongest level at year-end 2023, as measured by BCAR. The company received a capital injection from strategic investors in 2020, bolstering its paid-in capital to RMB 1.7 billion. Its shareholding structure changed from being a solely owned subsidiary of Hyundai Marine & Fire Insurance Co., Ltd. to a joint venture between local Chinese and Korean shareholders. Leveraging the broad customer base and technological advantages of its shareholders, HIC continues to diversify its underwriting portfolio to personal lines products. In its latest three-year business plan, the company targets to promote tailored products to ride-hailing drivers and report fast growth in motor insurance premium revenue. However, the company's operating loss is expected to sustain over this period. Based on this business plan, AM Best expects HIC's risk-adjusted capitalisation to weaken and become less supportive to the current balance sheet strength assessment.

AM Best assesses HIC's operating performance as marginal. While generating steady investment income from its cash and deposit driven invested assets, the company's bottom line has stayed negative since 2021 due to its widening underwriting loss. The fast expansion in ride-hailing motor insurance, predominantly new energy vehicles, may give rise to heightened pricing risk and underwriting volatility. On the other hand, AM Best expects more time is required for HIC to demonstrate better economies of scale and have meaningful reduction in its elevated expense ratio. The company does not expect to break even in the short term.

Despite achieving significant growth in its top line, AM Best expects HIC to remain as a minor player in China's non-life insurance market in the intermediate term, given the high concentration of market premiums and underwriting profit among a few top players, while the operating environment remains highly competitive for small to medium-sized entities.

Negative rating actions could occur if there is significant and adverse deviation in HIC's business execution compared with its business plan, leading to material deterioration in its risk-adjusted capitalisation. Negative rating actions also could arise if the company's operating performance materially deviates from its business plan and resulting in prolonged operating loss beyond AM Best's expectations. Positive rating actions could occur if HIC demonstrates successful execution of its business plan; for example, achieving faster-than-expected turnaround and sustained improvement in its operating performance, while maintaining a supportive level of risk-adjusted capitalisation. AM Best will continue to monitor HIC's business execution.

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.