ABCI maintains solid capital with reinsurance support in 2023

The regulatory solvency ratio stood at 339%, above the 100% minimum.

Hong Kong-based ABCI Insurance Company (ABCI) has shown a less favourable company profile and has been exposed to catastrophe risks in China, partially mitigated by reinsurance, according to Fitch Ratings.

Agricultural Bank of China (ABC) would provide capital support to ABCI if necessary, given its status as ABC's only non-life insurance subsidiary. 

ABCI benefits from operational synergies with ABC, sourcing most of its business from inward reinsurance via ABC’s distribution network. The rating is one notch higher than ABCI's standalone profile due to this support.

ABCI's capital position remained solid in 2023, according to the Fitch Prism Global Model, supported by reinsurance agreements and conservative investments in cash, bank deposits, and fixed-income instruments. 

The regulatory solvency ratio stood at 339% as of the first half of 2024, well above the 100% minimum. However, its relatively small capital base leaves it vulnerable to external shocks.

The company's financial performance weakened, with the combined ratio increasing to 103% in 2023 from 93% in 2022 under IFRS 17. 

This was primarily due to a rise in loss reserves in the motor business. Return on equity averaged 1.5% over 2022-2023, and profitability remains vulnerable to underwriting volatility, particularly in the property damage lines, which represented a third of premiums in 2023.

Fitch ranks ABCI’s company profile as "Less Favourable" compared to other insurers in Hong Kong, with a limited business scale and a market share of 0.3% by gross premiums in 2023. 

The insurer also relies heavily on reinsurance to manage catastrophe risk in China, ceding a significant portion of its business to high-quality reinsurers. Its net retention rate, which averaged 16% between 2021 and 2023, is expected to decline further from 2024.