CIRe’s ability to maintain underwriting controls is key in an increasingly competitive market

AM Best has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of China International Reinsurance Company Limited (CIRe) (Hong Kong). The outlook for both ratings is stable.

The rating reflects CIRe’s profitable operating performance, adequate capitalisation and prudent reserving practice.

CIRe has benefited from moderate catastrophe losses and a favorable investment market in 2007. CIRe’s earnings momentum continued in 2007 after it had a net profit of a record high level of HKD 363m in 2006. These two years of solid earnings are the key drivers of maintaining the stable outlook.

Given price deterioration and increasing competition in the global reinsurance market, CIRe’s ability to maintain underwriting controls and standards of determining pricing adequacy are key factors for the sustainability of the long-term operating performance.

CIRe’s risk-adjusted capitalization improved in 2007 compared to a year earlier due to the purchase of additional retrocession cover and higher profit retention in 2006. The company’s current level of risk-adjusted capitalisation is adequate to support the ratings. In addition, the company converted HKD 820 million (USD 105 million) of general reserves into paid-up capital in 2007, further demonstrating the capital commitment from its parent company, China Insurance International Holdings (CIIH).

However, AM Best believes that CIRe’s weather-related catastrophic exposure is still relatively high, which has resulted in a volatile Best’s Capital Adequacy Ratio (BCAR) over the past few years. AM Best remains cautious of this volatility.

Although pressure on CIIH to provide additional capital to support the organic growth from its major associated companies—Tai Ping Life and Tai Ping Insurance in China—has been relieved due to the continuous improvement in the associated companies’ operating results, AM Best is still keen to understand all risks (with regard to the associated companies) that could potentially impact CIRe’s financial strength.