AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Ping An Health Insurance Company of China, Ltd. (Ping An Health) (China). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Ping An Health’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The ratings also reflect the implicit and explicit support that Ping An Health receives from its two major shareholders, Ping An Insurance (Group) Company of China, Ltd. (Ping An Group) and Discovery Limited, with respect to capital and financial support, business development, investment and risk management.
Ping An Health’s capital and surplus was boosted significantly to CNY 6.7 billion as of year-end 2022, following a capital injection of CNY 2.6 billion from its shareholders in April 2022. AM Best expects that the expanded capital base will support the company’s business growth, and its risk-adjusted capitalisation will remain at the strongest assessment level in the short to intermedium term, as measured by Best’s Capital Adequacy Ratio (BCAR).
Ping An Health recorded moderate premium growth in 2022 after several years of fast expansion driven by strong sales in its key product offering, E Sheng Bao (ESB) medical insurance. ESB has been the primary source of profitability over the past few years; however, it showed a rising loss trend due to market competition in recent times. The company’s net loss ratio continued to edge up in 2022, offset by favourable development in operating expense ratio from an expanded earned premium base. The company recorded approximately 20% growth in underwriting profit with a net combined ratio of 93.9%, based on AM Best’s calculations.
Ping An Health delivered a return-on-equity ratio of 12.8% and a return-on-assets ratio of 2.8% in 2022. Due to a challenging investment landscape in 2022, the company reported approximately 60% decline in investment returns, together with realised and unrealised losses from fair value change of financial assets reported under profit and loss and other comprehensive income. To improve the investment return stability, the company has continued to reduce its exposure to stock market risk and increase its allocation to bonds and fixed-income investment funds. The company has limited exposure to the real estate sector in Mainland China as of the first half of 2023.
Ping An Health achieved very robust top-line growth in gross premiums written (GPW) to 2021 from 2017. However, the premium growth slowed down in 2022, partially attributed to its expanded premium base, increased health insurance industry penetration and intensifying market competition. In view of market headwinds and growing demand, the company has launched long-term health products and innovative medical products in recent years to secure a first-mover advantage in this segment. As part of Ping An Group, the company has a high level of control over its distribution channels, by leveraging the strong agency force of Ping An Life Insurance Company of China, Ltd. However, the moderate level of product concentration in its underwriting portfolio is an offsetting factor in its business profile. More than half of Ping An Health’s total GPW has been sourced from a single individual health product over the past few years.
Negative rating actions could occur if Ping An Health’s risk-adjusted capitalisation weakens such that it no longer supports the current balance sheet strength assessment, for example, due to higher-than-expected investment risks that materially deviate from the company’s risk appetite. Negative rating actions also could occur if the company exhibits a significant deterioration in its operating performance, such as having an ongoing underwriting loss from its concentrated individual health product or major reserve strengthening from long-term health products.
Positive rating actions could occur if the company continues to improve its balance sheet strength fundamental from self-sustaining internal capital generation through positive operating performance.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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