As a result of losses resulting from the recent explosions at Tianjin port, A.M. Best has placed under review with negative implications the financial strength rating of two Chinese insurers, which have large exposures to the losses of their motor vehicle insureds.
Aioi Nissay Dowa Å˽ðÁ«´«Ã½Ó³» (China) Company Limited – abbreviated ADIC – currently has a financial strength rating of A- (Excellent) and an issuer credit rating of “a-“. Hyundai Å˽ðÁ«´«Ã½Ó³» (China) Co. Ltd. – or HIC – currently has a financial strength rating of A- (Excellent) and an issuer credit rating of “a-“.
Both companies are being reviewed by A.M. Best because of the potential credit and liquidity risks resulting from an accumulation of motor vehicle losses from Toyota Motor Corporation (insured by ADIC) and Hyundai Motor Company (insured by HIC).
Although loss surveys from the August 14 disaster are ongoing, both ADIC and HIC are expected to have sizeable gross losses from the explosions, the ratings agency said.
Toyota Motor Corporation, which operates the joint-venture Tianjin FAW Toyota Motor Co. Ltd., has been particularly affected since Tianjin is Toyota’s largest production base in China, A.M. Best explained. At the same time, Hyundai Motor Company, Korea’s major car maker, had about 4,000 Hyundai and KIA vehicles at Tianjin port, said the ratings agency, citing various news reports.
“The explosion is expected to lead to a significant increase in credit risk [for ADIC], related to reinsurance recoveries, as well as to overall liquidity risk,” A.M. Best said.
The same rationale was given for the HIC review. A.M. Best said HIC can be expected “to have a sizable gross loss from the explosions, given the fact it has underwritten all property risks related to Hyundai Motor.” As a result, it said, this exposure could lead to a significant increase in credit risk related to reinsurance recoveries and liquidity risk.
Both companies’ ratings will remain under review, pending further discussions between A.M. Best and the insurers’ managements, regarding the measures being taken to restore their risk-adjusted capitalization.
Source: A.M. Best
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