Best’s News & Research Service - September 16, 2022 10:00 AM (EDT)
AM Best Removes From Under Review With Negative Implications, Affirms Credit Ratings of Cathay Century Insurance Company Limited
- September 16, 2022 10:00 AM (EDT)
Hong Kong //BestWire// - AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Cathay Century Insurance Company Limited (Cathay Century) (Taiwan). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect Cathay Century’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Cathay Century has been negatively impacted by significant claims arising from its pandemic insurance line amid the deterioration in Taiwan’s COVID-19 situation since April 2022. The company has continued to monitor the ongoing developments in its in-force exposure, infection rate and regulatory factors to adjust its estimation of ultimate losses. On 24 June 2022, the company received a capital injection of TWD 10 billion from its parent, Cathay Financial Holding Co., Ltd. (Cathay Financial Holding). The ultimate losses remain uncertain at this stage as the pandemic insurance policies are expected to fully run off by 2023. However, AM Best expects Cathay Century’s risk-adjusted capitalisation to remain at the strongest level over the short to intermediate term, as measured by Best’s Capital Adequacy Ratio (BCAR), supported by the capital injection and continued organic growth through profit retention from non-pandemic traditional insurance business and investments. Other supportive factors of the balance sheet strength assessment include the company’s diversified investment portfolio that focuses on low-risk fixed-income securities, good liquidity and comprehensive reinsurance arrangements.
AM Best expects the pandemic insurance claims to drag on Cathay Century’s operating results in 2022 and possibly 2023. Notwithstanding, AM Best views the negative impact as a one-off event and the company should be able to recoup its losses over the short to intermediate term, as demonstrated by its track record of consistently stable and profitable net earnings over the past years. In particular, Cathay Century’s major business line of voluntary motor has contributed to an improving underwriting margin supported by better pricing and the company’s continued effort in refining the risk quality and product composition.
Cathay Century remains the second-largest insurer in the Taiwan’s non-life market, with a market share of 12.4% in terms of direct premium written in 2021. The company continues to leverage the comprehensive business network of its parent group and affiliated distribution channels to grow its underwriting portfolio, albeit skewed toward personal-line insurance products.
Negative rating actions could occur if there is a substantial decline in its risk-adjusted capitalisation, for example, due to adverse development and much higher-than-expected ultimate losses from pandemic insurance, and without timely capital support from its parent, Cathay Financial Holding. Negative rating actions could also occur if Cathay Century exhibits material and sustained deterioration in its operating performance, specifically in its non-pandemic traditional underwriting portfolio and investment results. A change in the credit profile of the parent company may also pose a negative impact on the ratings of Cathay Century.
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.