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Fitch affirms ratings of Pacific & Orient Insurance

Fitch Ratings affirmed Pacific & Orient Insurance Co. Bhd.'s insurer financial strength rating at BBB+, with a stable outlook.

The rating agency said Jan. 19 that the affirmation reflects the insurer's strong capitalization and overall stable financial fundamentals. The ratings, however, are contained by the insurer's focus on the small niche market and its volatile reserving experience, Fitch added.

Fitch said that while it expects the insurer's top-line growth to remain under pressure in 2017 due to rising competition for motor premiums and uncertainty caused by the planned detariffication of motor rates from July 2017, it expects the insurer's overall underwriting performance to be stable due to its management's emphasis on bottom-line profitability.

A downgrade of Pacific & Orient Insurance's ratings could result from significant capital deterioration, a combined ratio persistently above 97%, as well as a sustained increase in financial leverage to above 35%, with net premiums-to-adjusted equity consistently above 2x.

Fitch does not expect to upgrade Pacific & Orient Insurance's ratings in the near term, but they may be upgraded over the medium term if the insurer broadens its market presence and improves business diversification, while maintaining its combined ratio below 90%.