The underwriting performance of Yingda Taihe Property Insurance Co (YDPIC) is expected to remain stable, supported by sustainable business growth and quality, said Fitch Ratings.
YDPIC’s combined ratio reached 91% in 2023, from 86% in 2022, due to a higher loss ratio on an increase in natural catastrophe losses. However, the ratio's three-year average of 89% during 2021-2023 was well below the guideline for 'A' rated non-life insurers.
YDPIC's investment returns also declined amid a volatile capital market, further contributing to a lower return on equity of 11% in 2023, from 17% in 2022 (2021-2023 average: 14%).
Ratings affirmed
Fitch has affirmed YDPIC’s Insurer Financial Strength (IFS) Rating at 'A' (Strong). The outlook is ‘Stable’. The rating reflects YDPIC's 'Strong' capitalisation, 'Favourable' company profile, stable financial performance and limited investment risk, said Fitch.
Aside from underwriting performance, YDPIC’s major rating drivers include:
Improving Capitalisation; Low Financial Leverage: YDPIC's risk-based capitalisation, assessed using the Fitch Prism Global Model, remained 'Extremely Strong' at end-1H2024. This was supported by a larger equity base due to an increase in retained earnings. Its comprehensive solvency ratio was 312% (2023: 316%), which is favourable compared with industry peers.
Fitch expects YDPIC to maintain a solid capital buffer to support its premium growth and its financial leverage ratio to remain commensurate with its rating in the near term. The ratio fell to 12%, from 13% at end-2023, due to a larger capital base.
'Favourable' Company Profile: Fitch’s assessment is based on YDPIC's 'Favourable' business profile and 'Neutral' corporate governance. YDPIC has a mid-sized operating scale with gross written premiums of CNY12bn ($1.69bn) and equity of CNY10bn. However, its market share was just 0.8% of industry direct premiums, reflecting the niche focus of its business.
The company also has a 'Favourable' business risk profile due to consistent quality business from its parent, State Grid Corporation of China, a state-owned electricity utility that contributes a large portion of YDPIC's business. Fitch expects it to remain focused on expanding its scale by underwriting quality businesses acquired from the market and its parent.
Limited Risky-Asset Exposure: Fitch expects YDPIC's investment risk to remain limited in the near term, as it reduced its equity-type investments, primarily stocks, and equity-type hybrids, to stabilise investment returns. Risky assets, which include equity-type and Fitch-adjusted non-investment-grade fixed-income investments, were equivalent to 59% of shareholder equity at end-1H2024, down from 64% at end-2023. This was also well below Fitch's criteria guidelines for the 'A' IFS Rating category.