Hong Kong, March 07, 2017 -- Moody's Investors Service has assigned an A3 insurance financial strength
rating (IFSR) to PICC Reinsurance Company Limited (PICC Re).
The rating outlook is stable.
This is the first time that Moody's has assigned a rating to PICC
Re.
PICC Re is a start-up that is 51%-owned by The People's
Insurance Co (Group) of China Ltd (PICC Group, unrated) and 49%-owned
by PICC Property and Casualty Company Limited (PICC P&C, financial
strength Aa3 negative), the largest P&C insurer by premiums
in China. PICC Group is majority-owned by the Chinese government
through the Ministry of Finance and the Social Security Fund. Moody's
considers PICC Re as a government-related issuer given its effective
government ownership (calculated to be 68.6%).
RATINGS RATIONALE
Moody's A3 IFSR on PICC Re reflects its integration with PICC Group
through investment management, risk management, the sharing
of a strong brand, the strong capitalization profile to support
its anticipated business growth, and business generation mainly
through PICC P&C. In the first few years of its operations,
PICC Re will source the majority of its premiums by assuming a portion
of the ceded business of PICC P&C, providing the reinsurer with
a stable source of business and with historical loss data.
However, these strengths are offset by the challenges PICC Re faces
as a start-up. These include (1) the execution risk related
to its business plan with no track record of underwriting performance;
(2) its limited business and geographic diversification in the first few
years of operations; (3) an anticipated increase in alternative investments
that are less liquid and transparent than market-traded assets;
and (4) its moderate gross exposure to catastrophe losses relative to
shareholders' equity resulting from earthquakes and floods.
Moody's believes that the Chinese government is willing to provide
support to PICC Re, considering the government's ownership
and its affiliation with PICC Group, as well as the increasing importance
of the (re)insurance industry to the economy. This is reflected
in the government initiatives -- including "One Belt
One Road" and the "Several Opinions of the State Council on
Accelerating the Development of the Modern Insurance Service Industry"
(commonly referred to as the "National Ten Rules") --
to grow the insurance industry by raising the penetration rate in the
country. As a result, we assume a "moderate"
level of government support, and a "moderate" level
of dependence given PICC Re's exposure to China's economy.
Moody's also assumes that both PICC Group and PICC P&C will
step in to support PICC Re in times of stress, as it is a strategically
important subsidiary within the Group. The strong underwriting
profitability and solid capitalization of PICC P&C provide strong
capacity for the Group to support PICC Re.
Given the above considerations, the A3 IFSR incorporates a one-notch
uplift of support from the Chinese government and a two-notch uplift
of parental support from PICC Group and PICC P&C.
The stable rating outlook of PICC Re reflects our expectation that the
standalone credit profile of PICC Re will remain stable, and that
the level of government support is unlikely to change over the medium
term despite the evolving nature of government policy. In addition,
PICC Re's rating is resilient to a hypothetical downside scenario
in which the sovereign rating is downgraded by one notch. Moody's
considered this scenario in view of the current negative outlook on the
sovereign rating.
RATING DRIVERS
Given that PICC Re is a start-up with no track record of profitability
or historical data on its catastrophe exposure, an upgrade of the
rating is unlikely in the next 12-18 months.
However, Moody's would consider adjusting its BCA and/or its
rating upward if PICC Re successfully establishes its franchise and a
track record of underwriting profitability, and expands its operations
with a more diversified business portfolio.
Conversely, Moody's would consider downgrading PICC Re's
rating if (1) there are any notable deviations from its business plan;
(2) there are signs of reducing support from its shareholders, or
a decrease in PICC Re's strategic importance to PICC Group;
and/or (3) there is a significant decline in our assessment of the level
of potential support from the Chinese government.
The principal methodologies used in this rating were Global Reinsurers
published in April 2016 and Government-Related Issuers published
in October 2014. Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
PICC Re is a start-up reinsurance company, and is headquartered
in Beijing. The reinsurer started its operations on 23 February
2017 and provides property, casualty, accident and short-term
health, as well as life reinsurance. It was established with
a registered capital of RMB1 billion.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Stella Ng
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Yat Man Sally Yim
Senior Vice President
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
