AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Qianhai Reinsurance Co., Ltd. (QHR) (China). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect QHR’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

QHR’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), remained at the strongest level as of year-end 2022. Capital and surplus increased by 2.1% to RMB 3.4 billion in 2022, underpinned by full retention of net profit. Going forward, AM Best expects QHR to continue to receive financial support from its major shareholders and explore opportunities in capital markets to bolster its capital structure. QHR has a diversified investment portfolio that focuses on cash and fixed-income securities, albeit with a moderate exposure to debt-type alternative investments.

The company has remained profitable over the past few years, with a five-year average return-on-equity ratio of 3.0% (2018-2022). In 2022, the company recorded a 61% year-on-year decline in net profit due to negative changes in investment valuations in tandem with capital market volatility. Its investment performance recovered moderately during the first three quarters of 2023. The life reinsurance segment remains as the major driver of underwriting results. QHR continues to commit resources and strengthen its business relationships with Chinese insurers and distribution partners to tap growth potential in traditional protection products and opportunities in financial reinsurance solutions to improve capital efficiency, while adjusting its risk appetite in long-term savings products in view of heightened challenges in asset-liability matching risk. On the other hand, the company’s non-life combined ratio improved in 2022, contributed by lower loss ratio. Interest income from deposits, coupled with returns from bonds, equities and financial products, has continued to support QHR’s overall investment results over the past three years. Notwithstanding, unfavourable capital market conditions in 2022 and year-to-date 2023 placed pressure on the valuations of the company’s invested assets, albeit its investment yield remains on par with domestic reinsurer peers.

QHR is a composite reinsurer controlled by three Chinese state-owned enterprises and plays a strategic role in the development of the Qianhai Free Trade Zone. Over the past five years, the company has continued to strengthen its market presence. The company’s non-life underwriting portfolio is diversified by product lines with a focus on Chinese risks as it rebalanced the overseas book to improve business quality.

Negative rating actions could occur if QHR’s risk-adjusted capitalisation declines significantly due to adverse deviation from its business and capital plan, for example, much faster-than-expected expansion in underwriting and investment risks. Negative rating actions also could arise if the company demonstrates a sustained deteriorating trend in its operating performance. Positive rating actions could occur if QHR’s domestic and overseas underwriting portfolios demonstrate sustained and favourable operating results that strengthen its overall operating performance, while very strong balance sheet strength remains unchallenged.

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

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