AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of FuSure Reinsurance Company Limited (FuSure) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect FuSure’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). The ratings also reflect the implicit and explicit support from its ultimate parent, Tencent Holdings Limited (Tencent), including capital, business development, investment, risk management and operational support.
FuSure’s very strong balance sheet strength is supported by its risk-adjusted capitalisation at the strongest level throughout the projection period up to 2026, as measured by Best’s Capital Adequacy Ratio (BCAR). Supporting factors to the result include expected capital support from its shareholders, prudent investment strategy focusing on investment-grade fixed-income securities, and cash and cash equivalents, as well as appropriate retrocession arrangements. Partially offsetting factors include a limited capital base and the fast-increasing underwriting leverage over the projection period.
AM Best assesses FuSure’s operating performance at adequate, based on the company’s actual performance and its latest business plan. In 2022, FuSure reported net profit, which is one year earlier to achieve breakeven compared with its original plan. Net profit in 2022 is a combined result of favourable underwriting experience, and investment income consistent with the company’s plan. FuSure forecasts to remain profitable with an expected low single-digit return on equity in the projection forecast periods. Underwriting volatility is alleviated by the sliding-scale commission structure of several key treaties underwritten by FuSure. Investment return is projected to remain stable at a low single digit over the forecast period, supported by the company’s investment portfolio largely consisting of short-term investment-grade bonds.
As a start-up reinsurance company, FuSure’s current underwriting portfolio is concentrated on health and accident lines in the Greater China region. The company is actively building its market presence and expertise in health and accident reinsurance, leveraging the parent group’s established insurance client network and distribution support. FuSure’s current book of business exhibits concentration in terms of product lines and clientele, nonetheless, as a short-duration personal line, the product risk of health insurance is considered moderate. Over the intermediate term, FuSure plans to diversify its product lines and geographical outreach.
FuSure continues to refine and strengthen its ERM framework. It has defined its risk appetite, established the three lines of defence governance structure, formulated various risk policies and performed stress testing. The company has submitted its first Own Risk and Solvency Assessment report (ORSA) to local insurance regulator, Hong Kong Insurance Authority, in June 2022. While FuSure’s risk management capability is commensurate with its risk profile, AM Best expects the company to enhance its ERM further as the company grows in business size and risk exposure increases.
FuSure receives rating enhancement from implicit and explicit support from its ultimate parent, Tencent, which owns 85.01% of shares of FuSure. Tencent has a sizeable balance sheet and is listed on the Hong Kong Stock Exchange, with high financial flexibility and excellent credit fundamentals. Tencent views FuSure as a long-term strategic investment. AM Best expects FuSure to benefit from the parent group both from explicit capital support, and implicit support in all aspects of operations and management, as well as particularly effective use of innovation and technology that could lead to competitive advantages in product design and pricing sophistication.
The stable outlooks reflect AM Best’s expectation that FuSure will maintain its solid risk-adjusted capitalisation with strong shareholder support while developing its business profile without material adverse deviation from its business plan.
Positive rating actions could occur if the company can demonstrate successful execution of its business plan and further strengthen its balance sheet. Negative rating actions could occur if the company materially deviates from its business plan, including adverse deviation from its projections, a significant decline in risk-adjusted capitalisation and liquidity level, or the operating performance no longer supports its current ratings. Negative rating actions also could occur if there is a material decline in the level of support it receives from its ultimate parent, Tencent.
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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