AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Luen Fung Hang Insurance Company Limited (LFH) (Macau). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect LFH’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

LFH’s risk-adjusted capitalisation remained at the strongest level at year-end 2023, as measured by Best’s Capital Adequacy Ratio (BCAR). The company has achieved organic growth in capital and surplus over the past few years, supported by a track record of strong operating results and partial profit retention. Other supporting factors include a prudent investment strategy, with a majority of the company’s investment portfolio composed of bonds, fixed deposits, and cash and cash equivalents in 2023.

LFH has continued to deliver a strong operating performance in 2023, attributed to its strong underwriting profitability and consistent investment income. The company has maintained a lower-than-industry-average loss ratio and moderate expense ratio over the past five years (2019 to 2023), leading to an average combined ratio of 61%. Additionally, its prudent investment strategy has secured a stable stream of interest and dividend income. The company’s gross premiums written (GPW) recorded a 4.4% growth in 2023, reversing three years of decline as the COVID-19 pandemic severely disrupted domestic economic growth.

AM Best assesses LFH’s business profile as neutral. LFH remains the second-largest non-life insurer in Macau, with a market share over of 20% in terms of GPW in 2023. The company continues to benefit from the distribution support from its bank shareholders and maintains a competitive edge in securing high-quality business via the bancassurance channel. Its underwriting portfolio remains moderately diversified, with premiums mainly concentrated in fire and medical lines. Other offsetting factors include its geographic concentration in Macau.

LFH is well-positioned for its current ratings. Negative rating actions could occur if its risk-adjusted capitalisation experiences a significant deterioration, for example, due to unexpected large underwriting or investment losses, or if its operating performance exhibits a material and deteriorating trend in profitability such that it no longer supports a strong assessment. Although unlikely in the intermediate term, positive rating actions could occur if LFH achieves sustained improvement in its operating performance while maintaining a robust level of risk-adjusted capitalisation.

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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