AM Best has reiterated its strong confidence in the Luen Fung Hang Insurance Company Limited (LFH), affirming the company’s Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent). The credit ratings agency also maintained a stable outlook for the Macau-based insurer.
LFH is the second largest P&C insurer in Macau. In 2022, its market share stood at 22.4% based on gross premiums written (GPW), despite a challenging year marked by the adverse impact of the COVID-19 pandemic.
The Company’s shareholders comprise a number of financial institutions from Hong Kong and Macau. including Tai Fung Bank, OCBC the Industrial, and the Commercial Bank of China.
The company has a moderately diversified underwriting portfolio, with the bulk of its business in fire and medical lines. The company’s strategy relies strongly on distribution support from its bank shareholders and that has given it a competitive edge in acquiring high-quality business through its bancassurance channel.
LFH’s gross written premiums (GWP) did decrease by 7.2% year-on-year in 2022. However, this tracked the overall market performance due to the pandemic and AM Best highlighted LFH’s strong financial indicators, stating, “both net combined ratio and return-on-equity remained strong at 58% and 17%, respectively, demonstrating a consistently strong and better-than-average operating performance.”
Additionally, AM Best highlighted LFH’s robust balance sheet strength, supported by risk-adjusted capitalisation at the strongest level. This was measured by Best’s Capital Adequacy Ratio (BCAR). “The company’s capital and surplus continues to grow organically through partial profit retention in the past few years, supported by a track record of positive operating results,” the agency added.
In terms of its investment strategy in 2022, the AM Best noted LFH’s approach was calculated and cautious. “The company’s investment strategy remained prudent in 2022, with a majority of its investment portfolio composed of bonds, fixed deposits, as well as cash and cash equivalents.”