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Fitch Affirms Urtrust Insurance at IFS 'BBB'; Outlook Stable
December 19, 2016 / 6:40 AM / in 10 months

Fitch Affirms Urtrust Insurance at IFS 'BBB'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, December 19 (Fitch) Fitch Ratings has affirmed China-based auto insurer Urtrust Insurance Co., Ltd's (Urtrust) Insurer Financial Strength (IFS) rating of 'BBB'. The Outlook is Stable. KEY RATING DRIVERS The rating affirmation reflects Urtrust's short operating track record, improving underwriting volatility, solid capital buffer, manageable exposure to risky assets, and the potential to expand its the motor insurance coverage through the sales network of its parent. Urtrust began underwriting non-life insurance business in China after obtaining its operating license in June 2011. The company's main shareholder is Guangzhou Automobile Group Co., Ltd (GAC), the sixth-largest motor vehicle producer in China. Urtrust's capitalisation has remained solid, but Fitch expects the company's shareholders to provide capital support to the auto insurer, if needed. Essentially, the Guangzhou Municipal Government controls the insurer through GAC and several other holding entities. Urtrust expects to obtain more capital injections in 2017 from its shareholders to facilitate the insurer's ongoing business growth. The company's capital score, as measured by Fitch's Prism Factor-Based Capital Model (FBM), stood at 'Extremely Strong' at end-1H16 after its shareholders added CNY775m in fresh capital in 9M15. The company's comprehensive solvency ratio under the China Risk Oriented Solvency System (C-ROSS) amounted to 415% at end-3Q16, well in excess of the 100% regulatory minimum. The solid capitalisation will provide a buffer against investment volatility and potential operation risks associated with its business expansion. Urtrust's underwriting performance has been volatile due to its short operating history and rapid expansion. The company's underwriting margin improved in 1H16 with a reduction in combined ratio to 103% from 122% in 2015, mainly due to a lower claim ratio in the motor business. The company has benefited from China's trial deregulation of commercial motor insurance pricing and the distribution cooperation with its parent. Urtrust has managed to lower its loss ratio without deterioration in its expense ratio amid fierce competition. Fitch expects that Urtrust to consistently rely on reinsurance to mitigate volatility from underwriting activity as its operating scale remains modest. The company's risk cession ratio was about 15% in 1H16. The IFS rating of Urtrust is constrained by its short operating history, the limited scale of its operation and its heavy concentration in the competitive motor insurance segment. Fitch expects Urtrust to report volatile underwriting results as the company further expands its distribution coverage. Non-recurrent expenses from network expansion could limit Urtrust's ability to further enhance its underwriting stability in the near term. Urtrust's equity exposure was still acceptable as its holding of equities and funds with stocks exposure accounted for only about 23% of total invested assets, or 38% of its shareholders' equity at end-1H16. The company's liquidity position to support its insurance liabilities declined in 2015 because of the continued expansion of its net claims liabilities. Nonetheless, its liquid assets were still sufficient to cover its insurance reserves with liquid assets to net claims reserve ratio of 3.1x at end-1H16. RATING SENSITIVITIES Downgrade rating triggers include: - Loss of distribution support from GAC, - Decrease in its capital score as measured by Fitch Prism Factor-Based Capital Model (FBM) to below 'Strong' on a sustained basis, - Material increase in catastrophe risks due to insufficient reinsurance protection, or - Lower operating margin than expected in its original business plan with combined ratio higher than 125% on a sustained basis. Upgrade rating triggers include Urtrust's ability to: - Strengthen underwriting stability with combined ratio persistently below 103%, - Broaden its distribution and geographic coverage, and - Sustain its risk-based capitalisation as measured by the score of Prism FBM at 'Strong' or higher. Contact: Primary Analyst Terrence Wong Director +852 2263 9920 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road, Central, Hong Kong Secondary Analyst Mia Yang Analyst +852 2263 9959 Committee Chairperson Siew Wai Wan Senior Director +65 6796 7217 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016708 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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