MoodyThe investor service company has maintainedPetroChinaInsurance Financial strength rating (IFSR) of exclusive property Insurance Co., Ltd. (PetroChina exclusive property Insurance) A2.
The above rating outlook remains stable.
Rating motivation
PetroChina exclusive property Insurance Co., Ltd. is the only wholly-owned exclusive insurance subsidiary of PetroChina Group Co., Ltd. (PetroChina, A1 / stable), which only underwrites the internal risks of the group. Moody's believes that the credit status of PetroChina's exclusive property insurance is closely related to that of PetroChina.
Maintaining the A2 financial strength rating of PetroChina's exclusive property insurance reflects the company's strong capital position and good profitability, but these advantages are offset by higher product risks and unstable underwriting profitability caused by its focus on the parent company's oil and gas business.
Due to the large registered capital and retained earnings, PetroChina's exclusive property insurance has a strong capital strength, which provides a buffer to cope with large claims and can support premium growth. By the end of September 2020, its comprehensive solvency adequacy ratio was as high as 360 per cent, well above the 100 per cent minimum regulatory requirement.
The company's profitability is good, benefiting from the support of stable investment income. Its underwriting profitability has also gradually improved due to the improvement of its corporate property insurance and liability insurance business line of compensation experience.
But the company's underwriting profitability fluctuates greatly. The company is exposed to significant losses because of its parent company's oil and gas-related risks, while the use of external reinsurance is limited. As a result, the company's ability to maintain underwriting profits remains to be tested.
Over the past two years, the company has significantly increased its investments in debt investment plans and trust schemes to enhance returns, but such investments have weakened liquidity and increased the credit risk of its portfolio.
A2's insurance financial strength rating includes the company's baa2 individual credit strength and three sub-levels of improvement, reflecting the business and capital support provided by its parent company. There is a sub-gap between PetroChina's and PetroChina's exclusive property insurance ratings, which reflects that the individual credit strength of PetroChina's exclusive property insurance is not strong, and the parent company does not provide it with a clear guarantee.
Moody's support assessment also took into account the regulatory requirements of the Bank of China Insurance Regulatory Commission that if the captive subsidiary fails to meet the solvency requirements set by the regulator, the parent company should inject capital into the captive subsidiary.
The rating outlook is stable, reflecting Moody's expectation that PetroChina's exclusive property insurance will continue to receive strong support from PetroChina. In addition, Moody's expects it to maintain its strong capital strength and improve its underwriting profitability as its business grows.
Factors that can cause ratings to be upgraded or downgraded
Given that the credit status of PetroChina's exclusive property insurance is highly related to the parent company, Moody's will consider upgrading PetroChina's exclusive property insurance rating only when PetroChina is upgraded. In addition, the upward pressure on the company's individual credit status is limited because of its concentration in the parent company's oil and gas business.
On the other hand, Moody's may downgrade PetroChina's exclusive property insurance rating if:(1) PetroChina's rating has been downgraded; (2) there is any indication that PetroChina's support has declined and PetroChina's exclusive property insurance began to underwrite third-party business; and / or (3) the company failed to replenish its capital level after suffering significant underwriting losses as a result of industrial accidents and / or catastrophic losses.
PetroChina exclusive property Insurance Co., Ltd. is located in Beijing and is wholly owned by China National Petroleum Group Co., Ltd. (PetroChina). The company mainly underwrites corporate property, engineering, liability, automobile and accident risks within the group. As of the end of 2019, the company's total assets andShareholders' rights and interestsThey are RMB 13.4 billion and RMB 6.5 billion respectively.