October 5, 2017 / 2:43 PM / a year ago

Fitch Assigns China Taiping UK 'A-' IFS Rating; Outlook Stable

(The following statement was released by the rating agency) LONDON, October 05 (Fitch) Fitch Ratings has assigned China Taiping Insurance (UK) Company Limited (TPUK) an Insurer Financial Strength (IFS) rating of 'A-'. The Outlook is Stable. KEY RATING DRIVERS The rating reflects the benefits of TPUK's ownership by China Taiping Insurance Group Ltd (TPG), the only state-owned Chinese insurance group headquartered in Hong Kong, via China Taiping Insurance Holdings Ltd (Long-term IDR A/Stable), as captured in a two-notch uplift to the UK insurer's standalone assessment of 'BBB'. Fitch views TPUK as "Very Important" to TPG under the agency's group rating methodology. The standalone assessment reflects TPUK's moderate business profile, very strong capitalisation and strong profitability. TPUK plays a key role in TPG's internationalisation strategy as the group's central point for UK and European markets. TPG follows a 'two wing strategy' with Europe and America in addition to the group's centre in Asia. TPUK benefits from capital, risk management, IT and human resource support from TPG as well as from the group's strong connections to the Chinese community in the UK and Europe. Fitch believes that TPUK can become 'Core', but views this as unlikely in the short to medium term due to TPUK's small size compared with the overall group. TPUK represented less than 1% of TPG's premium income in 2016. TPUK is a specialist niche insurer of small size and scale with gross written premiums (GWP) of GBP39.4 million in 2016. The company had 60 staff at end-2016, but key man risk is mitigated by the strong link to TPG. TPG has set up a talent pool to provide TPUK with additional staff when needed. In the last three years TPUK has reported strong GWP growth, reflecting TPG's increased international focus and TPUK expanding its sales network in combination with an increased product portfolio and entry into new European countries. Fitch expects that TPUK's premium income will continue to benefit from TPG's internationalisation strategy and from an increasing number of Chinese companies operating in Europe and the UK. Fitch views TPUK's capitalisation as very strong. This is supported by TPUK's 'Extremely Strong' score in Fitch's Prism factor-based model (Prism FBM) and its Solvency II SCR coverage of 186% at end-2016. TPG provided a GBP10 million capital injection in 2015 and plans another capital injection in 2019 to support TPUK's growth. Fitch understands the group plans to maintain TPUK's Solvency II SCR coverage at least at 150%. These measures underpin the group's strong willingness to provide support. Fitch views TPUK's underwriting performance as very strong and supportive of its rating. TPUK achieved a Fitch-calculated net combined ratio of 96.9% in 2016 (2015: 94.9%) and has reported strong operating results in recent years despite the strong premium growth, which is indicated by operating ratios continuously below 95%. Fitch believes that TPUK's operating results were not achieved at the expense of imprudent reserve setting. In 2016, TPUK achieved a strong return on equity of 8% (2015: 2%). RATING SENSITIVITIES A reduction of TPUK's strategic importance to TPG in Fitch's view could lead to a downgrade of TPUK's rating. This could result from the group failing to maintain TPUK's SCR coverage above 150%. Any significant weakening of TPUK's credit profile - for example, as measured by the company's Prism FBM score weakening to 'Strong' - could also lead to a downgrade. The rating could be upgraded if TPUK becomes 'Core' to TPG group in Fitch's view. However, Fitch views this as unlikely in the medium term because of TPUK's business profile. Nonetheless, in the long term profitable growth could lead to an upgrade. Contact: Primary Analyst Ralf Ehrhardt Director +44 20 3530 1551 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Graham Coutts Director +44 20 3530 1654 Committee Chairperson Federico Faccio Senior Director +44 20 3530 1394 Date of original committee: 15 September 2017 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com 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. 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