SINGAPORE–(BUSINESS WIRE)–AM Best has upgraded the Financial Strength Rating to B++ (Good) from B+ (Good) and the Long-Term Issuer Credit Rating to “bbb” (Good) from “bbb-” (Good) of Petrolimex Insurance Corporation (PJICO) (Vietnam). The outlook of these Credit Ratings (ratings) has been revised to stable from positive.
The ratings reflect PJICO’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The rating upgrades reflects an improvement in AM Best’s view of PJICO’s balance sheet strength fundamentals over recent years. Prospectively, AM Best expects the company’s risk-adjusted capitalisation to remain at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Despite a high dividend payout ratio over recent years, retained earnings and a capital injection in 2017 have been sufficient to bolster shareholders’ equity and to support business growth. In addition, capital adequacy is expected to exhibit reduced volatility over the medium term as a result of growth in the absolute size of the company’s capital base.
PJICO’s balance sheet strength assessment also considers the company’s generally conservative investment strategy, with approximately 75% of investments held in cash and term deposits. Other balance sheet considerations include the company’s reliance on reinsurance to support its underwriting capacity for large commercial risks, as well as to manage accumulation risks and catastrophe exposure.
AM Best assesses the company’s operating performance as adequate. PJICO reported a five-year average combined ratio of 99.2% and return-on-equity ratio of 10.6% (2016-2020). Overall earnings remain driven by a stable stream of investment income, which is generated largely from interest on cash and deposit holdings. Underwriting performance reflects a combination of favourable profitability on cargo and miscellaneous lines of business, which have typically exhibited low net loss ratios and good reinsurance commission income, partially offset by marginal performance on the motor line of business over recent years. PJICO’s technical performance also remains somewhat constrained by its high operating expense ratio.
AM Best views PJICO’s business profile as neutral. In 2020, the company ranked as the fifth-largest non-life insurer in Vietnam, with a market share of approximately 6%, based on gross premiums written. The company’s profile benefits from its partial ownership, common branding and preferential access to cargo business arising from its largest shareholder, Vietnam National Petroleum Group (Petrolimex). In addition, PJICO leverages on Petrolimex’s countrywide network of petrol stations to support the distribution of its retail insurance products, with this sales channel having grown quickly in recent years. In 2020, the company’s largest lines of business were motor and health, collectively accounting for over 70% of net premiums written.
AM Best considers PJICO’s ERM framework as appropriate given the size and complexity of its operations. The company has continued to make improvements to its risk management framework and processes, which have been visible over recent years, whilst further development and integration to the business remain ongoing.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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