Ratings Roundup: Insurance Australia Group, Bank of China

December 21, 2007

Standard & Poor’s Ratings Services has revised its ratings outlook on the counterparty and insurer financial strength ratings on Insurance Australia’s group of companies to negative from stable. S&P also affirmed the ‘AA’ ratings on Insurance Australia’s core subsidiaries. “The outlook revision reflects the group’s exposure to a number of large events, the latest being the Sydney hailstorms which are estimated to cost the group A$105 million [US$90.8 million],” said S&P. “The group also announced that it expects insurance margins to drop further to 9 percent-11 percent from 11 percent-13 percent, following a downward revision in October 2007 for gross written premiums and insurance margins.” S&P credit analyst Thomas Cherian indicated : “The cumulative negative impact of consecutive events in a relatively short period of time has reduced the company’s resilience to further market pressures or event risk required for the ‘AA’ rating. Coupled with the current soft cycle in the insurance markets in Australia and the U.K., the negative impact of the events has weakened the outlook on the company, both in terms of capital and operating performance.”

Standard & Poor’s Ratings Services has assigned its ‘A-‘ local currency insurer financial strength and counterparty credit ratings to Bank of China Group Insurance Co. Ltd. (BOCG Insurance) with a stable outlook. “The ratings on BOCG Insurance reflect the company’s good business position, strong financial flexibility, sound capitalization, and prudent investment management,” explained S&P credit analyst Connie Wong. “Counterbalancing factors include the insurer’s slightly below-average underwriting performance. However, its overall operating performance, supported by investment income, is satisfactory.” S&P also noted that “BOCG Insurance’s competitive position is good, reflecting its diverse distribution channels, which include those of its sister company, Bank of China (Hong Kong) Ltd. (BOCHK; A-/Stable/A-2), in Hong Kong, its parent, Bank of China Ltd. (BOC; A-/Stable/A-2), in China, and its network of intermediaries. This diversity gives BOCG Insurance a competitive advantage over its peers. BOCG Insurance is the third-largest domestic general insurer in Hong Kong, with a market share of 5.2 percent in 2006. About 43 percent of its premiums were derived from BOCHK over the same period.”

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