AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of "bbb-" of Tugu Insurance Company Limited (TIC) (Hong Kong).
The Credit Ratings (ratings) reflect TIC’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.
The revised outlooks reflect the strategic planning and reduced level of uncertainty over TIC’s capitalisation and business profile over the short to intermediate term. As TIC has formulated a new business plan, AM Best believes that TIC will continue to be an operating company of PT Asuransi Tugu Pratama Indonesia Tbk on a going concern basis over the short to medium term.
TIC’s strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), remained supportive of its balance sheet strength in 2019 and 2020. However, the company’s capital and surplus has exhibited volatility over the past five years, driven by revaluation gains and losses arising from its large yet concentrated investment in real estate. TIC’s operating performance has been unstable over the previous five years, due to significant reserve movements and volatile claims experience in its commercial lines-focused portfolio. Fixed costs remain high relative to its small-earned premium base. Conversely, the company’s overall operating earnings continued to benefit from a favourable stream of income from rental properties, bonds and equity investments.
TIC remains a small player in Hong Kong’s highly competitive and fragmented non-life market. Over the past few years, the company ceased retaining or significantly reduced exposures to unprofitable lines, including employees’ compensation and inward treaty businesses, which reduced its underwriting portfolio and business profile. Going forward, TIC aims to diversify its product offerings in Hong Kong’s insurance market, including personal motor and property lines, by strengthening its distribution partnerships with brokers and agents. AM Best expects the company to benefit from a more stable claims experience and improved management expense efficiency from a growing earned premium base.
TIC’s risk management framework continues to evolve; the company applies basic tools in risk management, such as investment and underwriting guidelines.
Positive rating actions could occur if the company successfully executes its business plan through consistently improved underwriting results. Negative rating actions could occur if there is a material decline in the company’s risk-adjusted capitalisation, for example, due to adverse reserve movements or a significant decrease in the market value of its investment properties.
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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