S&P Upgrades Hong Kong’s CIRe Rating to ‘A-‘

Standard & Poor’s Ratings Services announced that it has revised its insurer financial strength and long-term counterparty credit ratings on Hong Kong-based China International Reinsurance Co. Ltd. (CIRe) to ‘A-‘ from ‘BBB+’ with a stable outlook.

“The rating action reflects CIRe’s satisfactory operating performance despite the difficult operating environment that has faced the global reinsurance industry, particularly since the Sept. 11, 2001 terrorist attacks in the U.S.,” said S&P. It “enjoys a good market position, particularly in proportional property reinsurance, in Hong Kong and to a lesser extent elsewhere in southeast Asia. Moreover, the company’s capitalization is sound.”

S&P did indicate that “CIRe’s profile is, however, moderated by its exposure outside its main markets and the company’s average, albeit improving, asset quality.”

The rating agency does not believe that the other insurance interests of CIRe’s parent, China Insurance International Holdings Co. Ltd. (CIIH), which is 54.8%-owned by China Insurance (Holdings) Co. Ltd. of China, will create a financial drain on CIRe. It noted that “CIIH owns various interests in other insurance entities, including Tai Ping Life Insurance Co. Ltd., a rapidly growing company that is 24.9%-owned by the Fortis group.”

“CIRe’s operating performance remains satisfactory despite an increase in catastrophe claims in respect of incidents such as the terrorist attacks in the U.S. in September 2001, due to its international exposure,” S&P’s report continued. “The company has a better underwriting performance than other reinsurers with sizeable international exposure, because its exposure outside Asia is limited and its underwriting is prudent. Despite increased catastrophe claims, the company kept its combined ratio to 97.4% in the first half of 2002 largely as a result of increased premiums. This level is similar to its average combined ratio of 97.8% over the past three years.”

Contrary to the experience of many insures in Europe and the U.S., S&P indicated that “CIRe’s investment profile has improved over the past few years.” Most of its current investments are in fixed-income assets, with cash accounting for 23% of its total invested assets and bonds 57%; however the bulletin noted that “CIRe’s equity investments remain a major source of volatility in its investment portfolio.”

S&P concluded with the statement that it “believes that CIRe will not engage in on- or off-balance sheet transactions that might directly or indirectly involve the transfer of an atypical amount of funds to its parent or sister companies, and in so doing maintain its currently sound capitalization.”