SINGAPORE–(BUSINESS WIRE)–AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Post-Telecommunication Joint Stock Insurance Corporation (PTI) (Vietnam).
The ratings reflect PTI’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 revision of the outlooks to negative reflect AM Best’s assessment that balance sheet strength fundamentals have weakened due to recent capital erosion. In addition, increasing capital requirements arising from higher business growth and higher investment risks could further constrain capital adequacy over the near to medium term.
PTI’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is forecast to decline from the strongest level as of year-end in 2021 to the very strong level over the near term, driven by capital erosion due to large underwriting losses associated with loss-making COVID-19 medical insurance policies and higher capital requirements arising from business growth. Concurrently, the company’s regulatory capital ratio fell to 108% at September 2022 but is expected to recover and exceed the company’s internal tolerance level. The company’s investment portfolio is generally conservative with the majority of its investments in cash and deposits. However, the company plans to increase its investment allocation towards higher risk assets including non-rated corporate bonds and equity investments prospectively. A planned capital injection to PTI has faced ongoing delays. In AM Best’s view, this capital injection would substantially relieve pressure on the company’s risk-adjusted capitalisation.
The company’s operating performance is viewed as adequate as demonstrated by a five-year average return-on-equity ratio of 9.5% (2017-2021). PTI has generated consistent underwriting profitability in recent years, although underwriting performance was adversely impacted in 2022 due to material claims from its COVID-19 allowance product. As part of the company’s underwriting remediation measures, PTI is increasing the premium rates for its key lines of business, motor and health, in response to increasing claim costs. PTI’s investment returns, consisting primarily of interest income, have been a stable contributor to PTI’s overall profit over the past five years.
PTI is Vietnam’s third-largest non-life insurer with a market share of approximately 10% in terms of gross premium written in 2021. The company ranked first in the motor business and second in health and personal accident line in 2021. The company’s leading positions in these lines are supported by a wide distribution network and strong relationships with banking partners. PTI currently benefits from an exclusive distribution agreement that allows it to distribute insurance products via Vietnam Post Corporation’s extensive network of post offices across Vietnam. Other core distribution channels include agents and direct sales, bancassurance, brokers and showrooms.
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