Fidelidade Macau-Insurance Company's return on equity (ROE) rose to 9% by end-2023, from 3% a year earlier, on the resumption of construction projects and recovery of the tourist industry in Macau following the reopening of border between mainland China and Macau, noted Fitch Ratings.
The underwriting of new business related to the multi-year Macau light rail transit project also contributed to the improved ROE. The combined ratio averaged 62% during 2021-2023, better than the ratio guideline for 'A' rated insurers, based on Fitch's methodology
Rating affirmed
Fitch has affirmed Fidelidade Macau's Insurer Financial Strength (IFS) Rating at 'A' (Strong). The outlook is ‘Stable’.
The rating affirmation reflects the insurer's strategic importance to its owner, Fidelidade-Companhia de Seguros (Fidelidade, IFS Rating: A+/Stable), strong capital position, sound profitability and conservative investment allocation. The rating also considers the insurer's small operating scale and limited competitive positioning.
Aside from profitability, other factors behind Fidelidade Macau’s rating include:
'Very Important' Operating Subsidiary: Fitch has applied a one-notch uplift to Fidelidade Macau's standalone credit quality of 'a-' to derive an IFS Rating of 'A'. It reflects Fitch’s view that Fidelidade Macau is a 'Very Important' operating subsidiary of its parent, Portugal-based composite insurer Fidelidade under Fitch’s group rating methodology.
This considers the explicit synergy and operational cooperation between the parent and subsidiary. Fidelidade Macau is the sole non-life insurance company carrying Fidelidade's brand in the Asia Pacific, and a divestment of the subsidiary is unlikely. Fitch believes the parent would provide operational and capital support to the subsidiary, if needed.
Strong Capital Adequacy: The insurer's Prism Global Model Score remained at 'Extremely Strong' at end-2023, supported by accumulated share capital, which stood at MOP288m ($36m) at end-2023 after incorporating MOP128m of free reserves into share capital in May 2023. The statutory solvency ratio was 693% at end-September 2024, well in excess of the regulatory minimum requirement of 150%. The insurer may retain earnings to enhance its capital position in the next few years, in consideration of Macau's new risk-based capital regime, which is expected to be implemented in the medium term.
Conservative Investment Strategy: The insurer's risky-asset ratio was 8% at end-2023, as investment-grade bonds accounted for 89% of total invested assets and equities were limited to 6%. The insurer may increase the proportion of equity investments to seek higher yield, but Fitch estimates the risky-asset ratio will remain commensurate with the ratio guideline for its current rating level in the near term. The insurer has maintained a liquid asset/reserve ratio of above 600% in the past two years.
Small Operating Scale: Fitch assesses Fidelidade Macau's company profile as 'Moderate', based on a 'Moderate' business profile and 'Neutral' corporate governance compared with that of other Macau non-life insurers. The business profile score is constrained by the insurer's small operating scale and limited competitive positioning. It is the fifth-largest non-life insurer in Macau, based on a market share of around 7% in terms of gross written premiums in 2023.