Fitch Affirms FWD General Insurance at 'BBB+'; Outlook Stable
(The following statement was released by the rating agency)Fitch Ratings-Hong Kong-05 February 2021:
Fitch Ratings has affirmed the Insurer Financial Strength (IFS) Rating of Hong Kong-based FWD General Insurance Company Limited (FWD GI) at 'BBB+' (Good). The Outlook is Stable.
Key Rating Drivers
The rating reflects FWD GI's 'Strong' capitalisation and financial performance, balanced by its 'Moderate' business profile. The Stable Outlook reflects Fitch's expectation that FWD GI will maintain capital that is commensurate with the current rating. Fitch believes the insurer's new shareholder will maintain FWD GI's statutory solvency ratio at well above the regulatory solvency requirement.
Fitch's 'Strong' assessment of FWD GI's capitalisation reflects its Fitch Prism Model score that was well into the 'Strong' category at end-1H20, as its investment portfolio consisted mainly of investment-grade debt securities and cash. Moreover, FWD GI does not carry financial leverage, although the absolute size of its capital base remains small relative to that of peers.
FWD GI has a 'Strong' financial performance as its underwriting results remained profitable with a combined ratio of 93% in 2019. Its combined ratio decreased further in 2020 due to lower claims, especially in the medical business, as a result of fewer elective medical treatments.
Fitch ranks FWD GI's business profile as 'Moderate' compared with all other Hong Kong insurance companies. FWD GI has an adequate business franchise within Hong Kong's non-life insurance sector, supported by its well-diversified distribution. However, FWD GI's operating scale remains small with about 1% market share by gross written premiums in 2019. The company also has a 'Moderate' business risk profile and 'Somewhat Diversified' business portfolio, with a focus on accident and health policies, followed by general liability. This results in Fitch scoring FWD GI's business profile at 'bbb' under the agency's credit-factor scoring guidelines.
Fitch has been rating FWD GI on a standalone basis since September 2020, after the decision by FWD GI's parent, FWD Limited (Long-Term Issuer Default Rating: BBB+/Stable), to dispose of its entire stake in FWD GI to an affiliate. The transaction has been completed.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
- A material positive change in Fitch's rating assumptions with respect to the coronavirus impact;
- A positive rating action is prefaced by Fitch's ability to reliably forecast the impact of the coronavirus pandemic on the financial profile of both Hong Kong's insurance industry and FWD GI;
- Sustained and significant improvement in business profile in terms of scale and geographical diversification;
- Ability to maintain capital score in the 'Strong' category, measured by the Fitch Prism Model;
- Maintain combined ratio below 100% for a sustained period.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
- A material adverse change in Fitch's rating assumptions with respect to the coronavirus impact;
- Failure to maintain capital score in the 'Strong' category, measured by the Fitch Prism Model;
- Weakening in the underwriting margin, with its combined ratio persistently in excess of 105%.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [https://www.fitchratings.com/site/re/10111579]
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
FWD General Insurance Company Limited; Insurer Financial Strength; Affirmed; BBB+; Rating Outlook Stable
Primary Rating Analyst
Anthony Lam, CFA
+852 2263 9631
Fitch (Hong Kong) Limited
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+852 2263 9920
+852 2263 9939
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