The ratings reflect Ping An Health’s balance sheet strength, which AM Best categorises 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 the company 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 risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), remained supportive of the balance sheet strength as of year-end 2019. Capital injections, combined with full retention of profits since 2017, led to the significant growth in capital and surplus over the past few years, despite at a lower rate than the increased underwriting and investment risks driven by robust business expansion and higher investment exposure to equities and alternative investments in 2019, respectively. AM Best will continue to monitor the company’s business plan execution and the impact to its capital strength.
Benefiting from the prolific growth in the individual health segment with favourable claims experience and better economies of scale, Ping An Health has demonstrated improving trends in its loss and management expense ratios over the past few years. Notwithstanding, AM Best views there are headwinds to the underwriting margin and upward pressure in acquisition costs in view of the heightened market competition. On the other hand, the company’s investment results have been supported by the growing stream of interest income sourced from fixed income securities in bonds and alternative investments. The five-year average net combined ratio and return-on-equity were 97.5% and 9.3%, respectively.
Key rating factors related to Ping An Health’s business profile include a supportive regulatory environment in promoting sustainable development of the health insurance segment and the company’s high level of control over its distribution channels, in particular the agency force at its affiliate, Ping An Life Insurance Company of China Limited, as well as the moderate level of concentration risk in the company’s underwriting portfolio. In 2018 and 2019, more than half of the total gross premiums written were sourced from a single individual health product.
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 underwriting or investment risks that materially deviate from the company’s business plan. Moreover, negative rating actions could occur if the level of support Ping An Health receives from Ping An Group reduces or if the parent group’s credit fundamentals deteriorate significantly.
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