Best Affirms HK’s Sun Hung Kai Ratings

January 3, 2007

A.M. Best Co. has affirmed the financial strength rating of “A-” (Excellent) and the issuer credit rating of “a-” of Hong Kong’s Sun Hung Kai Properties Insurance Limited (SHKPI) with a stable outlook.

“The ratings reflect SHKPI’s consistent and profitable operating result, strong distribution support from its parent company, strong liquidity and low net premium leverage cushion,” said Best.

“SHKPI has maintained a consistent and profitable operating result in the past 10 years,” the report continued. “The company’s underwriting performance improved further in fiscal year 2006, with the overall loss ratio declining to 61.6 percent. The improved investment income and reinsurance commission income pushed the company’s operating ratio down to 16.8 percent.

“SHKPI has maintained approximately 42 percent of total assets in cash and deposits at the end of fiscal year 2006, which gives the company strong liquidity with regard to the risks underwritten. SHKPI derives significant benefits from the business generated from in-house and associated companies. The substantial support from the group business has provided SHKPI with a fair degree of flexibility on building a quality and steady portfolio.

“Offsetting factors include the company’s declining standalone risk-adjusted capitalization level and the continuation of the soft market.”

However Best indicated that while it “recognizes SHKPI’s profitable operating result, its risk-adjusted capitalization has deteriorated, as measured by Best’s Capital Adequacy Ratio (BCAR). The slower surplus growth and significant investments in private equity have weakened SHKPI’s overall capitalization level on a risk-adjusted basis.”

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