Investing.com -- AM Best, the global credit rating agency, has confirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a" (Excellent) for Sun Hung Kai Properties Insurance Limited (SHKPI), based in Hong Kong. The outlook for these credit ratings remains stable.

The credit ratings assigned to SHKPI are a reflection of the firm’s strong balance sheet, its robust operating performance, a neutral business profile, and appropriate enterprise risk management. The company’s balance sheet strength is considered very strong, bolstered by its risk-adjusted capitalization, which was at its highest point at the end of the fiscal year on June 30, 2024.

Over the years, SHKPI has been increasing its investments in cash and cash equivalents. The company’s bond portfolio has also shown an enhancement in credit quality, following efforts to reduce the majority of its bond exposure to China’s real estate sector. Given SHKPI’s careful investment strategy, AM Best believes the firm’s capital level can adequately absorb investment risks. Other factors supporting the firm’s strong ratings include a robust liquidity position, a healthy solvency ratio, and a suitable reinsurance program.

SHKPI has consistently demonstrated a strong operating performance in recent years, largely due to its superior underwriting profitability compared to industry competitors. In the fiscal year 2024, the firm’s double-digit return-on-equity ratio was a result of favorable underwriting experience and improved investment performance. The company’s investment returns saw further improvement in the same fiscal year, thanks to a higher interest rate environment. The firm also continues to benefit from group business, which has better quality and minimal acquisition expenses, leading to favorable underwriting results.

As a wholly owned subsidiary of Sun Hung Kai Properties Limited (SHKP), one of Hong Kong’s largest property development and investment conglomerates, SHKPI focuses on commercial business and employees’ compensation insurance. The company benefits from its parent company’s network to underwrite a significant portion of its business from associated and subsidiary companies, while maintaining a low acquisition cost business model. Although SHKPI holds a modest share of Hong Kong’s general insurance sector, it has managed to maintain its market position profitably, largely due to its group-related businesses.

However, negative rating actions could occur if there were a significant decline in SHKPI’s operating performance or a material deterioration in its risk-adjusted capitalization, for instance, due to substantial investment losses. While it is unlikely in the near term, positive rating actions could occur if there were a significant improvement in SHKPI’s balance sheet strength, for instance, due to further enhancements in its asset quality and capital size.

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