AM Best has assigned a Financial Strength Rating of B+ (Good) and a Long-Term Issuer Credit Rating of “bbb-” (Good) to Well Link Life Insurance Company Limited (Well Link Life) (Hong Kong). The outlook assigned to 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 was incorporated on 12 December 2016 and licensed to operate life insurance business in Hong Kong in April 2019. The company is a wholly owned subsidiary of Well Link Insurance Group Holdings Limited, an insurance holding company offering life and general insurance products and services.

Well Link Life provides life protection, savings, retirement and health insurance to customers, with endowments, participating savings and qualified deferred annuity products (QDAP), as these are the company’s 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 five 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). AM Best expects Well Link Life’s risk-adjusted capitalisation to remain at the strongest level prospectively, supported by its favourable capital buffer. Liquidity remains strong with approximately two-thirds of its investment portfolio comprising high-quality bonds, cash and cash equivalents as at year-end 2022. Offsetting factors in the balance sheet strength assessment include the company’s higher level of exposure to equity investments, which increases the volatility of its capital position in adverse capital market conditions.

Well Link Life’s reported capital has exhibited a downward trend since its operation in 2019, primarily attributed to higher new business strains and volatility stemming from capital losses. Realised and unrealised capital losses associated with listed stock and bond investments lowered the company’s capital and surplus by 20% in 2022. Notwithstanding, the company’s statutory solvency ratio has remained well above the regulatory minimum over the last three years.

AM Best views Well Link Life’s operating performance as marginal. The company’s four-year average return-on-equity ratio was -8.0% (2019–2022), per AM Best’s calculation. Its operating losses are largely due to unfavourable investment results and new business strains. The net loss after tax widened to HKD 359.4 million in 2022, as compared to HKD 260.2 million in the previous year. However, Well Link Life’s operating results improved materially in 2023, per the company’s unaudited financials. Premium revenue expanded at a robust rate while net investment income (including realised and unrealised capital gains/losses) turned positive, contributing to the substantially narrowed operating losses. Going forward, AM Best expects Well Link Life’s investment results to remain the key driver of its overall operating performance.

The company’s market presence remains limited in Hong Kong’s life insurance segment, a well-developed and highly competitive marketplace. The company attained a 0.4% new business market share of direct premiums written in the first half of 2023 and ranked 15^th among Hong Kong-based life insurance companies. Well Link Life’s in-force book consists mainly of non-participating endowment products. In 2023, the company actively promoted its participating saving products and its contribution to the total premium income has increased significantly. Well Link Life primarily leverages the broker channel to market products. Going forward, it plans to develop a more diversified product mix with a focus on long-term participating products and QDAP. AM Best considers Well Link Life to have a higher-than-average business execution risks because of its start-up nature, as it gradually transforms its business strategy.

The company’s ERM is assessed as appropriate. Well Link Life adopts the “Three Lines of Defense” model as its risk governance structure. The risk tolerances stipulate that the company shall ensure that its solvency ratio exceeds 200% based on the current Hong Kong Insurance Ordinance (HKIO) solvency requirements, and its solvency position under the upcoming risk-based capital regime to be 10% above its prescribed capital requirement. Well Link Life has an articulated investment policy, with a defined strategic asset allocation.

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 expansion plan. 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 such that it no longer supports the strong assessment. Negative rating actions could take place if a deterioration in Well Link Life’s risk management capabilities negatively impacts the ERM assessment. Positive rating actions could occur if the company demonstrates a sustained and profitable operating performance while maintaining the strong balance sheet strength assessment. Positive rating actions could also occur if the company achieves sustainable organic capital growth over the intermediate term and contributes positively to the balance sheet strength assessment.

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

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