Hong Kong insurer hit by ratings downgrade from AM Best

Uncertain capitalisation and low liquidity credited for worsening ratings

Hong Kong insurer hit by ratings downgrade from AM Best

Insurance News

By Gabriel Olano

Tugu Insurance Company (TIC), a Hong Kong-based general insurer, has received a ratings downgrade from ratings agency AM Best.

The insurer’s financial strength rating was downgraded to B+ (good) from B++ (good) and the long-term issuer credit rating to “bbb-” from “bbb”. AM Best added that the outlook of these ratings is also negative, due to uncertainty about TIC’s capitalisation. It is also indicative of the firm’s low liquidity buffers.

TIC’s combined ratios have been above industry average over the past five years, due to challenges in finding profitable sources of premium growth. The company’s enterprise risk management (ERM) has been deemed marginal, and its risk management capability does not match its profile in several areas, including liquidity and strategic risk.

“TIC’s balance sheet strength is currently strong and supported by low underwriting leverage ratios, said AM Best in its report. “However, liquidity buffers are low and there is uncertainty over TIC’s future capitalization, as its parent intends to dispose of its ownership of TIC and repatriate major assets. While AM Best expects that TIC will be capitalised to satisfy regulatory requirements, no details are available to assess its risk-adjusted capitalisation after the change in ownership.”

According to AM Best, TIC’s ratings may decline further if its risk-adjusted capitalisation declines due to a significant decrease in its capital position, as well as if it encounters unexpected volatility in its operating performance and a further decline in liquidity.

 

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