AM Best Affirms Credit Ratings of Well Link Life Insurance Company Limited

AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of Well Link Life Insurance Company Limited (Well Link Life) (Hong Kong). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Well Link Life’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

Well Link Life has been operating a life insurance business in Hong Kong since April 2019, with endowments, participating savings and qualified deferred annuity products (QDAP) as its major offerings. The company has established distribution partnerships with a network of brokers and developed a tied agent team, as well as an online application platform to serve customer needs. In addition, Well Link Life operates six wealth management centres in Hong Kong.

Well Link Life’s strong level of balance sheet strength is underpinned by its risk-adjusted capitalisation being assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). However, the BCAR has declined over the last two years, driven by reductions in the capital and surplus combined with increased size of investments and insurance liability. According to the company’s business and capital plan, AM Best expects its risk-adjusted capitalisation to remain at the strongest level in 2024 and 2025, but face downward pressure from 2026 onward, due to higher required capital for supporting significant top-line growth over the projection period (2025 – 2027).

The company’s investment portfolio is mainly composed of publicly listed bonds and stocks. The bond portfolio is mainly consisted of high-quality securities, while the company has been diversifying its equity portfolio in terms of sector and geography. Liquidity remains healthy.

AM Best views Well Link Life’s operating performance as marginal. The company’s return-on-equity ratio was -13.8% in 2023, per AM Best’s calculation. The operating losses were mainly attributable to negative insurance service results, marginally offset by improved investment performance. Losses from onerous insurance contracts mostly arising from saving-type products materially weighed down on the company’s insurance service results under the HKFRS17 basis. Well Link Life undertook several initiatives to improve underwriting profitability in 2024.

As a start-up insurer, Well Link Life faces challenges from new business strains. The company’s bottom-line performance was negatively impacted by expense overrun, but it expects higher operating expense efficiency over the intermediate run. Well Link Life’s investment performance has materially improved driven by capital gains and higher dividend and interest income in 2023. The investment momentum is expected to continue in 2024, with a double-digit investment yield rate.

The company’s market presence remains limited in Hong Kong’s life insurance segment, a well-developed and highly competitive marketplace. Well Link Life’s individual life new business market share grew to 1.6% by direct written premiums as of the first three quarters of 2024, and it ranked 12^th among Hong Kong-based life insurers. During 2023 and 2024, the company actively promoted its participating saving products through the broker channel, which accounted for around 90% of new business in 2024. Going forward, the company plans to further expands its long-term participating business and grows its non-participating lines moderately.

Well Link Life’s ERM is considered appropriate to its risk profile. It has established the three lines of defense governance structure, formulated various risk policies and performed stress testing. The company performs annual Own Risk and Solvency Assessment (ORSA) and submits its ORSA report to the local insurance regulator, the Hong Kong Insurance Authority.

The stable outlooks reflect AM Best’s expectation that the balance sheet strength will remain strong and regulatory solvency will remain robust over the medium term, while the company executes its business and capital plans. Controlled asset risk is expected to contribute towards a strong balance sheet strength assessment.

Negative rating actions could occur if there is a material deterioration in Well Link Life’s balance sheet strength metrics such that it no longer supports the strong assessment. Positive rating actions could occur if the company demonstrates a sustained and profitable operating performance, while maintaining its strongest level of risk-adjusted capitalisation. While unlikely in the near term, positive rating actions could occur if the company’s capital position significantly improves, for instance, through external financial support or raising capital from existing and/or new investors. In addition, negative rating actions could take place if a deterioration in the company’s risk management capabilities negatively impacts the ERM assessment.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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