The worldwide credit standing company says that the A3 IFSR displays the insurer’s robust underwriting profitability and capitalisation, together with its prudent funding allocation. These strengths are offset by its publicity to important disaster danger and its reasonable market place in Macau. Its monetary flexibility can be constrained by the weak credit score profile of its final main shareholder, Fosun Worldwide
Moody’s notes that Fidelidade Macau has reported robust underwriting revenue with its mixed ratio beneath 80% since 2017. The insurer advantages from its bancassurance partnership which helps it distribute worthwhile traces of enterprise, together with hearth insurance coverage. However, tariffs and middleman fee bills have helped protect underwriting margins within the insurer’s motor third get together legal responsibility and staff’ compensation traces.
The insurer’s capital buffer is powerful relative to its dangers underwritten, primarily reflecting its stable share capital and retained earnings. Its native solvency ratio is excessive when in comparison with its home friends at 558% as of the top of June 2020. Moody’s expects the insurer will preserve robust capitalisation to help enterprise development and buffer towards potential massive industrial claims.
The insurer has a conservative funding portfolio that primarily includes money, bonds and deposits, with low asset dangers. Whereas the insurer plans to spend money on equities for yield enhancement, Moody’s expects its asset danger to stay low within the subsequent 12-18 months.
Nevertheless, the insurer’s geographic focus in Macau and its rising massive industrial dangers expose it to important disaster danger, primarily from typhoons, which may enhance the volatility in its profitability. The chance is partly mitigated by its reinsurance packages that enormously scale back potential losses to a low degree relative to its capital.
Fidelidade Macau is the sixth largest property & casualty insurer in Macau, which is a small insurance coverage market by premiums. Its market share by premiums is reasonable at 4.6% in 1H2020. As well as, its modest working scale ends in a excessive underwriting expense ratio compared with similarly-sized friends.
The task of recent rankings on Fidelidade Macau additionally takes into consideration its governance as a part of Moody’s environmental, social and governance (ESG) issues.
Contemplating its possession by Fosun and governance, Fidelidade Macau’s monetary flexibility is considerably constrained by the excessive debt leverage and weak liquidity of Fosun. Fosun has a sophisticated organisational construction and is uncovered to credit score contagion danger from its subsidiaries. This contagion danger, and particularly reputational injury, may pressure the insurer’s enterprise development and future potential capital market entry.
Nonetheless, the insurer is topic to the robust regulatory oversight of the Financial Authority of Macao. As well as, Fosun doesn’t have majority management on the board of administrators of Fidelidade Macau, permitting the insurer to function fairly independently from Fosun. Fidelidade Macau additionally abides by a stringent associated get together transaction coverage. Moody’s believes these measures ought to help the insurer’s monetary place regardless of its majority possession by Fosun whose credit score profile is far weaker.
The outlook is steady, reflecting Moody’s expectation that the insurer will preserve its robust underwriting profitability and capitalisation within the subsequent 12-18 months.