November 27, 2017 / 2:58 AM / a year ago

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

(The following statement was released by the rating agency) HONG KONG, November 26 (Fitch) Fitch Ratings has affirmed China-based auto insurer Urtrust Insurance Co., Ltd.'s (Urtrust) Insurer Financial Strength (IFS) rating of 'BBB' (Good). The Outlook is Stable. KEY RATING DRIVERS The rating affirmation reflects Urtrust's strong capitalisation, moderately weak underwriting results, and good business profile given its ability to expand its motor insurance coverage through the sales network of its parent. Urtrust began underwriting non-life insurance business in China from June 2011 and captured a market share of 0.1% in Chinese non-life insurance market in 9M17. The company is 60% owned by Guangzhou Automobile Group Co., Ltd (GAC), the sixth-largest motor vehicle manufacturer in China. Urtrust's capitalisation has remained strong. Its capital score, as measured by Fitch's Prism Factor-Based Capital Model (FBM), stood at 'Very Strong' at end-1H17 and its comprehensive solvency ratio under the China Risk Oriented Solvency System (C-ROSS) amounted to 359% at end-3Q17, well in excess of the 100% regulatory minimum requirement. The strong capitalisation will provide a buffer against potential investment risks and underwriting volatility associated with its business expansion. Fitch expects the company's shareholders to provide ongoing capital injection given Urtrust's underwriting deficits and expansion. Essentially, the Guangzhou Municipal Government controls the insurer through GAC and several other holding entities. Urtrust expects to obtain more equity capital in 2018 to replenish its solvency margin and to support its future investment. The company has managed to leverage its unique shareholder background with GAC to tap into the competitive Chinese motor insurance market. Around 90% of Urtrust's gross written premiums were concentrated on motor insurance in 2016. Underwriting profitability could come under pressure in the next two to three years as deregulation of Chinese commercial motor insurance intensifies market competition. Urtrust's combined ratio averaged at 112.5% from 2015 to 1H17. Fitch expects Urtrust to report moderately weak underwriting results as the company expands its distribution coverage. Its small absolute operating scale and non-recurrent expenses from network development, branch set-up, and brand building will constrain Urtrust's ability to reduce its underwriting expenses and limit the insurer's ability to further enhance its underwriting stability in the near term. Fitch expects Urtrust to consistently rely on reinsurance to expand its capacity and to mitigate volatility from underwriting activity due to its modest capital base. The company's risk retention ratio averaged at 86% from 2015 to 1H17. Urtrust added non-marine catastrophe excess-of-loss reinsurance treaties in 2017 and the probable maximum loss after its reinsurance arrangements is tolerable relative to its capital scale. Urtrust's risky assets exposure, including stocks, unlisted equities, equity-related investment funds and wealth management products, accounted for about 33% of its shareholders' equity at end-1H17, well below the median ratio guideline of 100% for an IFS 'BBB' rated non-life insurer. The company's liquidity position was adequate to support its short-tailed insurance liabilities. Liquid assets amounted to 3.3x of its net claims reserve, or 1.3x of its net technical reserve at end-1H17. RATING SENSITIVITIES Downgrade rating triggers include: - Loss of distribution support from GAC, - Decrease in its capital score, as measured by Fitch's Prism FBM, to below 'Strong' on a sustained basis, - Material increase in catastrophe risks due to insufficient reinsurance protection, or - Lower operating margin than the company outlined 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 Fitch's Prism FBM, at 'Strong' or higher. Contact: Primary Analyst Mia Yang Analyst +852 2263 9959 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road, Central, Hong Kong Secondary Analyst Terrence Wong Director +852 2263 9920 Committee Chairperson Jeffrey Liew Senior Director +852 2263 9939 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here 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. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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