The ratings reflect QHR’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
QHR’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), remained at the strongest level as of year-end 2021. The capital and surplus increased by 7.1% to RMB 3.3 billion in 2021, underpinned by full retention of net profit. Going forward, AM Best expects the company to continue to receive financial support from its major shareholders and explore opportunities in capital markets to enrich its capital structure. Other supportive factors to the balance sheet strength include the prudent retrocession arrangements and the diversified investment portfolio focused on cash and fixed-income securities, albeit with a moderate exposure to debt-type alternative investments.
The company extended the profitable trend in 2021 with a return on equity of 6.5%, compared with the five-year (2017-2021) average of 2.1%. The company continues to commit resources and strengthen its business relationships with Chinese insurers and distribution partners to tap growth potential in traditional protection products and opportunities in financial reinsurance solutions to improve capital efficiency, while adjusting its risk appetite in long-term savings products in view of heightened challenges in asset-liability matching risk. The life reinsurance segment remains as the major driver of underwriting results. On the other hand, the non-life combined ratio increased in 2021, partially attributed to several large losses during the year, including the Henan floods and some commercial fire events in the overseas portfolio. Interest income from deposits, coupled with returns from bonds, equities and financial products, has continued to support the overall investment results over the past three years. Notwithstanding, unfavourable capital market conditions in the first three quarters of 2022 have put pressure on the valuations of the company’s invested assets, albeit its investment yield remained on par with domestic reinsurer peers.
QHR is a composite reinsurer controlled by three Chinese state-owned enterprises and plays a strategic role in the development of the Qianhai Free Trade Zone. Over the past five years, the company has continued to strengthen its market presence. The non-life underwriting portfolio is diversified by product lines with a focus on Chinese risks as the company rebalanced the overseas book to improve business quality.
Negative rating actions could occur if QHR’s risk-adjusted capitalisation declines significantly due to adverse deviation from its business and capital plan, for example, much faster-than-expected expansion in underwriting and investment risks. Negative rating actions also could occur if the company demonstrates a sustained deteriorating trend in its operating performance.
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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