Fitch Ratings has revised the Outlook on
Key Rating Drivers
Outlook Revision: The Negative Outlook reflects the increasing volatility in ABCI's underwriting performance. The company's combined ratio averaged 123% in 2020-1H22, but was higher at 127% in 2021, implying a significant deterioration in 2H21 from 98% in 1H21. ABCI reported better underwriting results in 1H22 due to healthier performance from its motor-vehicle and property insurance businesses, although we expect underwriting performance to remain volatile from a varying expense ratio and an unstable business mix.
Parental Support: The rating affirmation reflects ABCI's capital strength and distribution support from its ultimate parent,
ABCI is rated one notch above its standalone basis to reflect the operational synergy with and support from
Strong Capitalisation: ABCI has maintained a solid capital buffer to withstand its underwriting volatility and support its steady business growth. The company's solvency ratio stayed at 368% at end-1H22, well exceeding the 100% regulatory minimum. The company's risk-based capital ratio, measured by Fitch's Prism Model, scored in the 'Extremely Strong' category at end-2021. Fitch expects ABCI to sustain adequate capital to buffer its potential operating volatility in consideration of its reinsurance approach and investment strategy.
'Less Favourable' Company Profile: Fitch ranks ABCI's company profile as 'Less Favourable' compared with that of all other
Fitch considers ABCI's business mix as unstable, reflected to a great extent by the shifts between motor vehicle and property damage lines in the past few years. The portfolio has limited diversification in distribution channels as the majority of its business is sourced from
Dependence on Reinsurance: ABCI has large catastrophe risk exposure in
ABCI has an ESG Relevance Score of '4' for Exposure to Environmental Impacts due to large earthquake and typhoon risk exposure in
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Sustained deterioration in underwriting results with ABCI's combined ratio consistently exceeding 114% for a sustained period;
Fitch's assessment that operating or capital support from
Negative rating action on
Decline in its capital strength with the Fitch Prism Model score dropping to below the 'Strong' category;
Significant increase in catastrophe risks (net of reinsurance) relative to ABCI's capital due to a significant shift in reinsurance strategy.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Strengthening in underwriting stability, with lower reliance on reinsurance;
Improvement in its business profile in terms of diversification of distribution channels, while maintaining its capital buffer with its capital score, as measured by the Fitch Prism Model, at 'Strong' or higher.
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 '
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.
ESG Considerations
ABCI has an ESG Relevance Score of '4' for Exposure to Environmental Impacts due to large earthquake and typhoon risk exposure in
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
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