A.M. Best Affirms Rating of Wing Lung Insurance

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) of Wing Lung Insurance Company Limited, Hong Kong.
The outlook is stable.

The rating reflects Wing Lung Insurance’s strong underwriting profitability; adequate loss reserves for the long-tail business lines; prudent reinsurance protection; conservative investment portfolio; and the general insurance industry’s much improved pricing environment.

The company is reportedly one of the fastest-growing carriers of employees’ compensation (E/C) business in Hong Kong, with a year-on-year premium growth rate of 99.4 percent in 2001. Capitalizing on hardened premium rates, underwriting profitability has improved markedly and compares favorably to that of its peers.

The current level of loss reserves is considered to be adequate, notwithstanding the volatile nature of the liability lines’ claim patterns. Prudent reinsurance arrangements also provide an additional buffer for the capital base. Balance sheet liquidity remains strong, supported by a preference towards cash and cash equivalents.

Offsetting factors include new business strain on capital, increased concentration risk in the underwriting portfolio and declining investment return.

Business growth has resulted in pressure on risk-adjusted capital, despite the HKD 100 million (USD 12.8 million) cash injection in 2002 by the Wing Lung Bank. This is exacerbated by increased exposure to specific environmental factors affecting the general liability business, such as the frequency and size of claims, trends in court awards and reinsurance terms.

Also affecting the earnings profile is the return on invested assets, which has been on a steady decline since 1998.