A.M. Best Assigns Ratings to China Overseas Insurance Limited

A.M. Best Asia-Pacific Limited has assigned a financial strength rating of B++ (Good) and an issuer credit rating of "bbb" to China Overseas Insurance Limited (COIL) (Hong Kong). The outlook assigned to both ratings is stable.

The ratings reflect COIL's improvement in loss experience, low underwriting expenses and the strong support it receives from its parent company, China State Construction International Holdings Limited (CSCI), one of the largest construction companies in Hong Kong and ultimately owned by China State Construction Engineering Corporation (CSCEC), a Chinese state-owned construction company.

COIL was established to focus on serving the insurance needs of CSCI's construction projects in Hong Kong. In October 2013, COIL received a capital injection of HKD 150 million from CSCI to strengthen its capitalization to support the anticipated business growth spurring from the parent's development in the Hong Kong construction market. A.M. Best considers the amount significant compared to the capital and surplus level of HKD 260 million as of December 2012. Moreover, the company also has access to the investment management capabilities of one of the investment management subsidiaries within CSCEC.

COIL's book of business is largely comprised of the construction employees' compensation business (EC), which is predominately sourced from CSCI. Since 2010, COIL's loss experience of its pivotal EC business improved as claims development stabilized in the later years of the policy contracts, as well as strengthened case reserves. Moreover, the company incurred low acquisition costs on parent-related business, while the higher commission income earned from an enlarged business volume had offset the increase in operating expenses over the past few years.

Offsetting these positive rating factors are COIL's relatively weak risk-adjusted capitalization, potential underwriting and reserve volatilities stemming from the long-tailed nature of its construction EC business and a relatively concentrated investment portfolio on property and construction sectors, which exposes the company to a higher degree of systematic risk.

Factors that could lead to positive rating actions are consistent improvement in COIL's risk-adjusted capital position and a favorable trend in its claims experience. Alternatively, factors that could lead to negative rating actions include a substantial deterioration in COIL's risk-adjusted capitalization due to unfavorable operating performance and/or adverse development in its reserves.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.

A.M. Best Asia-Pacific Limited is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Asia-Pacific Limited
Vivian Cheung
Financial Analyst
[phone]
[e-mail]
or
Moungmo Lee
General Manager
[phone]
[e-mail]
or
Rachelle Morrow
Senior Manager, Public Relations
+(1) 908 439 2200, ext. 5378
[e-mail]
or
Jim Peavy
Assistant Vice President, Public Relations
+(1) 908 439 2200, ext. 5644
[e-mail]