AM Best Affirms “A (Excellent)” Financial Strength Rating and “a (Excellent)” Long-Term Issuer Credit Rating of Luen Fung Hang Insurance Company Limited
AM Best, a leading global credit rating agency, has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) for Luen Fung Hang Insurance Company Limited (LFH), headquartered in Macau. The outlook for both ratings remains stable, reflecting the company’s robust financial position, strong operating results, and effective risk management framework.
This affirmation underscores LFH’s continued resilience in Macau’s insurance sector and highlights the company’s sound fundamentals, disciplined underwriting practices, and prudent investment strategies. AM Best’s evaluation focuses on several critical areas, including balance sheet strength, operating performance, business profile, and enterprise risk management, all of which contribute to LFH’s stable credit ratings.
Strong Balance Sheet Strength
LFH’s balance sheet strength remains one of its most significant credit strengths, which AM Best assesses as very strong. The company’s risk-adjusted capitalization, measured by Best’s Capital Adequacy Ratio (BCAR), remained at the strongest level as of year-end 2024. This metric reflects LFH’s ability to absorb unexpected losses while maintaining solvency and operational stability.
Over the past several years, LFH has maintained consistent organic growth in capital and surplus through disciplined profit retention, allowing the company to strengthen its financial foundation without overreliance on external capital injections. The company’s conservative investment strategy further supports its balance sheet stability, with a significant portion of its portfolio allocated to bonds, fixed deposits, and cash and cash equivalents, which provide liquidity and minimize exposure to high-risk assets.
Additional supporting factors include LFH’s low underwriting leverage, which limits risk exposure relative to capital, and its prudent reinsurance arrangements, which help mitigate the impact of large claims events. Together, these elements underpin AM Best’s view of LFH’s very strong balance sheet and support the company’s current rating levels.
Strong Operating Performance
LFH’s operating performance remained strong throughout 2024, driven by both its underwriting profitability and stable investment income. While the company’s gross premiums written (GPW) remained relatively flat during the year, its underwriting results continued to deliver high profitability. LFH’s loss ratio was notably lower than the industry average, and its expense ratio remained moderate, reflecting disciplined cost management practices.
Over the past five years, from 2020 to 2024, LFH’s average combined ratio stood at 60.1%, illustrating the company’s ability to generate consistent underwriting profits while managing claims and operating expenses efficiently. In addition to underwriting performance, LFH’s investment portfolio has provided a stable stream of interest and dividend income, which supplements earnings and enhances overall financial resilience.
The company’s operating performance, characterized by consistent profitability and disciplined risk management, remains a key factor supporting AM Best’s rating assessment. LFH’s ability to generate strong operating results, even amid market fluctuations and competitive pressures, highlights the company’s strategic focus on sustainable growth and financial stability.
Neutral Business Profile
AM Best assesses LFH’s business profile as neutral, reflecting both its strengths and certain limitations in its market positioning. LFH is recognized as the second-largest non-life insurer in Macau, commanding a market share exceeding 20% based on domestic GPW in 2024. The company benefits from distribution support from its bank shareholders, which provides access to a broad customer base and a reliable channel for new business acquisition.
LFH maintains a competitive edge in the bancassurance market, enabling it to secure high-quality business opportunities while leveraging the relationships and trust established through its banking partners. The company’s underwriting portfolio exhibits moderate diversification, with premiums primarily concentrated in fire and medical insurance lines. This concentration is partially offset by the company’s strong risk management practices and disciplined underwriting approach.
However, LFH’s geographic concentration in Macau presents a potential limitation, as the company is heavily exposed to the economic and regulatory conditions of a single market. While this concentration does not currently pose a material risk, it is a factor that AM Best monitors as part of its ongoing assessment of the company’s business profile.
Enterprise Risk Management
LFH’s enterprise risk management (ERM) framework is deemed appropriate, reflecting its proactive approach to identifying, monitoring, and mitigating potential risks. The company’s ERM practices encompass underwriting, investment, operational, and strategic risks, ensuring that management has a comprehensive view of the company’s risk exposure at any point in time.
Prudent reinsurance arrangements, conservative investment policies, and low underwriting leverage are key components of LFH’s risk management strategy. Together, these measures allow the company to maintain resilience against unexpected losses while supporting steady capital growth. AM Best notes that the company’s ERM framework effectively complements its balance sheet strength and operating performance, further justifying the current ratings.
Rating Stability and Outlook
LFH is well-positioned to maintain its current credit ratings. AM Best identifies specific factors that could influence future rating actions:
- Negative Rating Triggers: A significant deterioration in risk-adjusted capitalization, potentially arising from large unexpected underwriting or investment losses, or a material decline in operating profitability, could lead to negative rating actions. However, such scenarios are considered unlikely in the near term given LFH’s current financial discipline and risk management practices.
- Positive Rating Triggers: Sustained improvement in operating performance, coupled with the maintenance of a robust risk-adjusted capital position, could potentially result in a positive rating action. While this remains a possibility, AM Best emphasizes that such improvements would need to be consistent and material to warrant an upgrade.
The stable outlook reflects AM Best’s expectation that LFH will continue to deliver strong underwriting results, maintain a conservative investment approach, and uphold solid capitalization levels over the intermediate term.
Communication and Transparency
Ratings are communicated to rated entities prior to publication, and unless explicitly stated otherwise, they remain unchanged following that communication. This ensures transparency and allows rated companies to understand the rationale behind their credit ratings before public disclosure.
The press release relates to Credit Ratings published on AM Best’s website, and for complete information regarding the release, including details of the office responsible for issuing each rating, users are encouraged to consult AM Best’s Recent Rating Activity page. Additional resources, such as the Guide to Best’s Credit Ratings and the Guide to Proper Use of Best’s Ratings & Assessments, provide detailed information on the use, limitations, and interpretation of credit ratings.
About AM Best
AM Best is a globally recognized credit rating agency, data analytics provider, and news publisher specializing in the insurance industry. Headquartered in the United States, AM Best operates in over 100 countries, offering insights and evaluations of insurers’ financial strength and creditworthiness. The company maintains regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore, and Mexico City, enabling it to serve a diverse and international client base.
AM Best’s expertise in insurance ratings, combined with its analytical capabilities and extensive market data, makes it a trusted source for investors, regulators, and industry participants seeking a comprehensive understanding of insurance companies’ financial health and operational performance.
