A.M. Best Affirms Ratings of Sun Hung Kai Properties Insurance Limited.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of Sun Hung Kai Properties Insurance Limited (SHKPI) (Hong Kong). The outlook for both ratings is stable.

The ratings reflect SHKPI's sustained favorable operating profitability, improved liquidity in its investment portfolio resulting in stronger risk-based capitalization, and niche distribution network.

SHKPI has a good business niche and stable distribution network. As part of Sun Hung Kai Properties Group, one of the leading property development conglomerates publicly listed in Hong Kong, SHKPI benefits from its parent's brand recognition and affiliations within the group, which has enabled it to maintain a quality book of business.

SHKPI has consistently maintained a relatively low retention of risks written. Its historically favorable underwriting performance is driven by consistent improvement in the loss ratio and alleviation of acquisition costs through reinsurance commission income over the past five years to 2008. The company's combined ratio stood at 40% for fiscal year 2008 and averaged 54% during fiscal years 2004-08.

SHKPI is adequately capitalized to support its current ratings. In view of the company's prospective business growth, its net premium leverage ratio is expected to remain at a conservative level through 2009 (0.34 times for fiscal year ended June 2008). A gradual decrease in private equity investments and asset reallocation to cash or highly liquid assets are likely to improve the company's risk-based capitalization, as measured by Best's Capital Adequacy Ratio, in the near future.

The offsetting factors are potential weaker investment performance and continued softening market conditions.

For the first half of fiscal year 2009 (July - December 2008), SHKPI's investment performance weakened compared to the same period in 2007, primarily as a result of the turmoil in the financial markets. In addition, the company's underwriting profitability for 2009 is challenged to return to its 2008 performance, due mainly to higher expected loss experiences and the continued soft premium rates in employees' compensation business. The potential volatile capital market environment, continued soft market conditions and the company's lower level of anticipated premium production could adversely affect SHKPI's operating profitability in the near term.

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, which 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.