HONG KONG: AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of Evergreen Insurance Company Limited (EICL) with stable outlook.
The ratings reflect EICL’s balance sheet strength, which AM Best categorizes as strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
As a pure captive of Evergreen Group, EICL underwrites mainly marine, aviation and property risks related to the group’s operations.
EICL’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remained at the strongest level. It is underpinned by low net underwriting leverage, a highly conservative investment portfolio and prudent reinsurance arrangements with a diversified panel of financially sound reinsurers. The company’s small absolute capital size has experienced some volatility over the past five years due to dividend payouts.
Going forward, AM Best expects the company to maintain a prudent approach in capital management by balancing business expansion needs and shareholder expectations.
The company continues to demonstrate a consistent trend of strong operating results, mainly attributed to favorable and better-than-industry claims experience, a stable level of operating expenses, as well as a stream of ceding commission income. Investment yields remain positive yet low due to the highly conservative investment portfolio.
As a pure captive, EICL continues to be an integral part of the overall risk management at Evergreen Group by providing value-added services such as underwriting solutions, operational safety and loss prevention services to affiliated companies. The company is equipped with strong underwriting knowledge and maintains a geographically diversified book of insured risks.
Offsetting rating factors include the potential volatility in risk-adjusted capitalization from heightened reinsurance credit risk in post major event scenarios due to the high reinsurance dependence in its captive business model. The risk is mitigated partially through the use of a diversified panel of domestic and overseas reinsurers of sound financial quality.
While positive rating actions are not likely over the short to intermediate term, negative rating actions could occur if there are material capital or dividend payouts that lead to a substantial decline in EICL’s risk-adjusted capitalization, or there is a deteriorating trend in the company’s operating performance.