OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit rating (ICR) of "a" of Macau Insurance Company Limited (MIC) (Macau). At the same time, A.M. Best has downgraded the FSR to A- (Excellent) from A (Excellent) and the ICR to "a-" from "a" for MIC's subsidiary, Macau Life Insurance Company Limited (MLIC) (Macau). The outlook for these ratings has been revised to negative from stable.

The revised outlook for MIC reflects the unfavorable trend of the underwriting performance and a significant reduction in premium portfolio size.

Due to the suspension of construction projects (including casinos and resorts) in Macau, MIC experienced negative premium growth of 46.3% (negative 7.5% at an industry level) in 2008. The decline in premium was driven primarily by the reduction of business written in employees' compensation and contractors' all-risk portfolios.

Soft market conditions and intense competition have exacerbated MIC's underwriting profitability over the past five years. MIC's combined ratio increased to 95.4% in 2008 from 74.7% 2007 due to the deterioration in the net claim experience. In view of its projected subdued business growth, MIC's underwriting performance could possibly be weakened by its high expense ratio. Going forward, given the competitive market landscape, A.M. Best remains cautious about the decline in market demand for risk products as a result of a slowdown in local economic activities and the potential impact on the company's underwriting profitability.


The rating affirmations reflect MIC's adequate capitalization and liquid investment portfolio.

MIC's risk-based capital position on a consolidated basis, as measured by Best's Capital Adequacy Ratio (BCAR), is supportive of the current ratings, although a capital contribution of MOP 42 million (approximately USD 5 million) to MLIC was made in April 2009 to strengthen its local solvency requirement. MIC's net premium leverage was 0.33 times for 2008 (0.44 times for 2007) and is expected to remain at a conservative level over the next three years.

Given the relatively short tail nature of its insurance book, MIC maintains strong liquidity within its invested asset mix. As at December 31, 2008, 62% of its total invested assets were held in cash, deposits and bonds. Despite the volatile investment environment in 2008, MIC continued to post positive net investment results, albeit at a lower level.

The rating downgrades for MLIC reflect the substantial deterioration in operating earnings and the weakened business profile due to the run-off of the guaranteed saving products (GSP) portfolio.

MLIC recorded a net loss of MOP 49 million (USD 6 million) for 2008, primarily due to investment losses in the GSP portfolio triggered by the recent turmoil in the financial market. The company recorded net investment losses of MOP 31 million (USD 4 million) in 2008, translating into a 57% decline in absolute capitalization, while its risk-adjusted capitalization, as measured by BCAR, deteriorated significantly for the year. MLIC has placed the endowment business (GSP portfolio) into run-off, which has been the key premium driver over the past five years (accounting for 95% of total premiums written in 2007 and 2008). In addition, the company has announced no guaranteed return but only a capital guarantee on the GSP products for 2009, which could potentially increase lapse activity during the year. Nonetheless, to sustain its premium growth after the winding up of its GSP portfolio, MLIC will place greater emphasis on the distribution of risk life products going forward.

Somewhat offsetting these negative factors are the financial support from MIC, stable profitability in the pension business and MLIC's initiative in reducing the asset risk of its investment portfolio. With capital contributions made by MIC in April 2009, MLIC's risk-adjusted capitalization remains sufficient relative to its expected business and investment risks in the coming two years.


For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

A.M. Best Company

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Source: A.M. Best Company