Bao Minh Insurance Corporation’s (BMI) overall earnings have been supported over the past five years (2015-2019) by healthy investment returns averaging in excess of 5% per annum, although these returns are expected to decline over the near term given domestic interest rate reductions seen in 2020, says AM Best.
The global credit rating agency says that BMI’s operating performance is adequate, as demonstrated by a five-year average return-on-equity ratio of 7.2% (2015-2019). BMI’s combined ratio improved from 98.2% in 2018 to 97.0% in 2019, in part driven by the introduction of tighter underwriting guidelines and higher policy deductibles in its motor portfolio.
The company’s technical performance remains constrained partially by its elevated operating expense ratio.
Over the near term, planned growth in personal accident and health business, which exhibits robust loss experience but high distribution costs, is expected to further increase the company’s expense ratio, although AM Best expects its combined ratio to remain stable.
AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of BMI. The outlook of these credit ratings is stable.
The ratings reflect BMI’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. The ratings also factor in a neutral impact from the company’s majority ownership by the State Capital Investment Corporation (SCIC), which is the sovereign wealth fund of Vietnam.
Balance sheet strength
BMI’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation that is expected to remain at the strongest level over the medium term, as measured by Best’s Capital Adequacy Ratio. Despite the company’s moderate dividend payout ratio, AM Best expects retained earnings to remain sufficient to support planned business growth. Partially offsetting balance sheet factors include the company’s basic approach to asset liability management, despite exposure to longer-duration products within the company’s portfolio mix.
AM Best assesses BMI’s business profile as neutral. BMI is ranked as the fourth largest non-life insurer in Vietnam based on 2019 gross premium written, although its market share has shown a gradual reduction over the years. BMI’s underwriting portfolio is viewed as diversified by line of business although the company has a single market concentration to Vietnam.
BMI’s business profile benefits from a level of business referral from its majority shareholder; SCIC, albeit a divestiture by this shareholder is expected over the near to medium term.