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FOR IMMEDIATE RELEASE
HONG KONG - DECEMBER 08, 2017 10:04 AM (EST)
A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Qianhai Reinsurance Co., Ltd. (QHR) (China). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect QHR’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
QHR was founded in December 2016 as a composite reinsurer with an initial capitalization of RMB 3 billion (approximately USD 454 million) and is headquartered in the Qianhai Free Trade Zone in Shenzhen, China. The company is controlled jointly by three state-owned enterprises in China that each own 20%: Qianhai Financial Holdings Co, Ltd; China Post Group; and Shenzhen Capital Co., Ltd. The remaining 40% of shares are held by four private sector companies: Aishida Electric Co. Ltd (14.5%); Septwolves Industrial Co. Ltd (10.5%); Tempus International Business Services Co. Ltd (10%); and Qi Tina Holdings Co., Ltd. (5%).
As a startup, QHR’s focus in its initial years of operation will be on managing volatility, taking less catastrophe risk on the underwriting front and emphasizing asset-liability management for its investments. Under the business plan that it updated in March 2017, QHR intends to generate higher revenue than its original business plan called for, but it also plans to retrocede more business through quota share retrocession. The bulk of the revenue the company intends to generate will be used to help the direct industry with regulatory solvency pressure. As the company has a large buffer in terms of solvency capital, this strategy will help the company earn a stable income while it grows and diversifies its portfolio.
Offsetting rating factors include QHR’s startup nature, the challenges it faces in executing its business plan and a high expense burden relative to its premium base. A.M. Best notes that the general expense budget already has increased in its first business plan update. In addition, as QHR is based in China, which is a catastrophe-prone country, the company also could be exposed to a series of catastrophe events that would subject its capital strength to greater volatility during its early years of operations.
Positive rating actions are unlikely in the near term. Negative rating actions may occur if the company materially deviates from its business plan, including an adverse deviation from its projections, or if the company’s liquidity or risk-adjusted capitalization levels diverge from A.M. Best’s expectations. A reduced level of commitment from the three strategic shareholders also would impact the ratings negatively.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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