AM Best has assigned a Financial Strength Rating of B++ (Good) and a Long-Term Issuer Credit Rating of “bbb” (Good) to HDFC International Life and Re Company Limited (HDFC) (United Arab Emirates), a subsidiary of HDFC Life Insurance Company Limited (HDFC Life), which in turn is owned by HDFC Bank Limited (HDFC Bank). The outlook assigned to these Credit Ratings (ratings) is stable.

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

HDFC’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, which is at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The primary driver of the company’s required capital is underwriting risk, given the company’s exposure to mortality/morbidity risk and relatively low risk investment portfolio. Notwithstanding the company’s ambitious growth plans, AM Best expects HDFC’s risk-adjusted capitalisation to remain at the strongest level, supported by the company’s low asset risk profile and the good credit quality of its retrocession programme. The primary offsetting factor is the limited size of the company’s balance sheet in absolute terms, which makes it more susceptible to volatility.

HDFC has recorded profitable operating results in four of the past five financial years (FY 2020 – FY 2024), with a weighted average return on equity (ROE) of 1.4%, as calculated by AM Best. Under IFRS 17, the ROE for FY 2024 and FY 2023 was 5% and 14%, respectively. The five-year average ROE is skewed given a material operating loss reported in FY 2022, due in part to COVID-19 related claims. Recent underwriting performance of the company’s medical and group life portfolios has been more profitable, following corrective actions, including improved risk selection taken by management, resulting in (net-net) combined ratios, as calculated by AM Best, of 95% and 92% in FY 2024 and FY 2023, respectively. Investment income has been modest, albeit stable, indicative of its low risk investment portfolio.

HDFC is a small (re)insurer by global standards, with insurance revenue of USD 22 million at FY 2024. The company specialises in medical, short- and long-term life products and has started to expand into direct retail business in India. HDFC has good geographic diversification across Gulf Cooperation Council countries and has been able to enter the Hong Kong and India markets; however, concentration risk among the cedents within its reinsurance book remains high.

HDFC’s ERM framework is considered to be appropriate given the current size and complexity of its operations. The risk management practices and capabilities are integrated with its decision-making process and with the practices of its immediate insurance parent, HDFC Life Insurance Company Limited.

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