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China Re targets overseas expansion with Hong Kong subsidiary

16th December 2019 - Author: Luke Gallin

China Re Group is set to launch a new fully-owned subsidiary, China Reinsurance Hong Kong Co. Ltd. (China Re HK), which is expected to play a vital role in the company’s overseas expansion plans for its life reinsurance business.

China ReThe new subsidiary will have the benefit of being able to leverage China Re’s established relationships with life insurance companies based in Hong Kong.

In light of this, and the fact the new reinsurance unit is likely to receive a timely and strong long-term commitment of parental support, S&P Global Ratings has said that it therefore equalises the rating on Chin Re HK with its parent’s group credit profile.

S&P has today assigned its preliminary ‘A’ issuer credit and financial strength ratings to China Re HK, and has assigned the ratings with a stable outlook. The preliminary ratings, says S&P, reflects its expectation that this new life reinsurance subsidiary of China Re will play an integral role in the parent’s overseas expansion strategy, particularly for life reinsurance offerings.

“We therefore view China Re HK as a core subsidiary of its ultimate parent, China Re Group, and equalize the rating with our assessment of the parent’s ‘a’ group credit profile. China Re HK will be 100% owned by its immediate parent, China Life Reinsurance Co. Ltd. (China Re Life), which will in turn be fully owned by China Re Group,” explains S&P.

The ratings agency expects China Re HK to receive long-term support from its parent, which includes things like capital injections, retrocession arrangements, asset management, sharing of risk and compliance and also senior management personnel.

The ratings agency notes that China Re Life has entered a “letter of understanding” with the insurance regulator in Hong Kong, with the condition that the reinsurance firm will keep its regulatory solvency ratio at not less than 150% at all times.

The new Hong Kong domiciled life reinsurer is set to share brand name of its parent and in order to assume underwriting in the early stages of development, will share the group’s established relationships with Hong Kong primary life insurers.

“The reinsurer will also benefit from the parent group’s product strategy and actuarial expertise. We expect the entity’s local presence to facilitate better outreach to its clientele through provision of comprehensive life reinsurance products,” adds S&P.

During the start-up phase, S&P expects that China Re HK’s costs will likely weigh on its bottom line, ultimately limiting its profitability.

The ratings agency expects to assign a final rating to China Re HK once the firm receives regulatory approval from the Hong Kong insurance regulator, likely by the end of 2019.

“We may lower the ratings on China Re HK if the reinsurer’s importance to China Re Group diminishes. We consider this as unlikely over the next two years. We could also downgrade China Re HK if we lower our assessment of China Re Group’s credit profile.

“We could raise the ratings on China Re HK if we revise upward our assessment of China Re Group’s credit profile,” says S&P.

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