AM Best Revises Outlooks to Positive for Petrolimex Insurance Corporation

AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of "bbb-" of Petrolimex Insurance Corporation (PJICO) (Vietnam).

These Credit Ratings (ratings) reflect PJICO'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 (ERM).

The revised outlooks reflect improvement in the company'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). 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, underpinned by robust retained earnings.

PJICO's balance sheet strength assessment also factors in the company's generally conservative investment strategy with approximately 75% of investments held in cash and term deposits. Partially offsetting factors include the company's exposure to reinsurance counterparties that are non-rated on an international financial strength rating scale, although there was a reduction in exposure to non-rated counterparties in 2019.

AM Best assesses the company's operating performance as adequate. PJICO reported a five-year average combined ratio of 98.6% and return-on-equity ratio of 11.1% (2015-2019). 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 motor line of business over recent years. The company's technical performance remains partially constrained by its high operating expense ratio. Overall earnings remain driven by a stable stream of investment income, which is generated largely from interest on cash and deposit holdings.

AM Best views PJICO's business profile as neutral. In 2019, 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 2019, the company's largest lines of business were motor and health, collectively accounting for 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 the recent years, while further development and integration to the business remains 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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