Best’s News & Research Service - February 02, 2024 09:02 AM (EST)
AM Best Removes From Under Review With Negative Implications and Affirms Credit Ratings of Fubon Insurance Co., Ltd. and Fubon Insurance Vietnam Co., Ltd
- February 02, 2024 09:02 AM (EST)
//BestWire// - AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a” (Excellent) of Fubon Insurance Co., Ltd. (Fubon Insurance) (Taiwan). The outlook assigned to these Credit Ratings (ratings) is negative. Concurrently, AM Best has removed from under review with negative implications and affirmed the FSR of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of Fubon Insurance Vietnam Co., Ltd. (Fubon Vietnam) (Vietnam). The outlook assigned to these ratings is stable. Additionally, AM Best has assigned the Vietnam National Scale Rating (NSR) of aaa.VN (Exceptional) to Fubon Vietnam with a stable outlook.
The ratings reflect Fubon Insurance’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management (ERM). The ratings also reflect the support that the company receives from its ultimate parent, Fubon Financial Holding Co., Ltd. (Fubon Financial Holding).
The ratings reflect Fubon Vietnam’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings also factor in rating enhancement from its parent company, Fubon Insurance. Fubon Vietnam benefits from its common branding and affiliation with the Fubon group and receives implicit and explicit support, including areas of new product development, pricing and reserving, as well as management oversight. The company is considered important in supporting the group’s regional business growth objectives.
Fubon Insurance’s ratings were placed under review with negative implications on 3 February 2023, reflecting the uncertainty in the company’s capital position, which depended on its pandemic insurance loss development, heightened exposure to reinsurer credit risk, due to its sizeable reinsurance recoverable, and the amount of further capital support from Fubon Financial Holding, at that time. As pandemic policies matured in the first half of 2023, and a second round of capital injection of TWD 16 billion was completed in May 2023, the company’s non-consolidated capital and surplus, based on unaudited financial statements, recovered to TWD 18.7 billion at the end of 2023, from TWD 4.5 billion at year-end 2022. Notwithstanding, the assigned negative outlook reflects concerns about the potential downward pressure on Fubon Insurance’s balance sheet strength, due to the heightened level of reinsurer credit risk pertaining to the collectability and lengthened timeline of the company’s sizeable reinsurance recoverable. Fubon Insurance had arranged proportional reinsurance for its pandemic policies in 2021 and 2022, and although the reinsurance recoverable declined in 2023, reinsurance assets remain as a significant proportion of the company’s capital position. If there is unfavourable resolution of disputes in reinsurance contracts without timely parental financial support, the company’s risk-adjusted capitalisation as measured by Best’s Capital Adequacy Ratio (BCAR) and liquidity may be subject to exacerbated pressure.
The company’s 2023 full-year unaudited net loss is expected to be narrowed. The net loss is mainly driven by adverse pandemic claims developments in the first quarter of 2023, as well as the partial bad debt provision made on the outstanding reinsurance recoverable.
Fubon Financial Holding is the second-largest listed financial holding company in Taiwan in terms of total assets. Fubon Insurance plays a strategic role in the group’s financial platform and receives long-term operating and capital commitments from Fubon Financial Holding, as evidenced by the aforementioned capital injection. The lift assessment reflects AM Best’s expectation that the parent will remain committed in providing additional financial support to Fubon Insurance in a timely manner to bolster its balance sheet strength, if needed as per the local Financial Holding Company Act.
Negative rating actions could occur if there is unfavourable resolution of disputes in reinsurance contracts, without timely and sufficient capital replenishment from Fubon Financial Holding and/or Fubon Insurance’s other capital contingency plan, which will lead to a material deterioration in Fubon Insurance’s risk-adjusted capitalisation and/or liquidity profile. Negative rating actions could also occur if Fubon Insurance exhibits material and sustained deterioration in its operating performance, particularly in its non-pandemic traditional underwriting portfolio and investment results. A material deterioration in the credit profile of Fubon Financial Holding, or its level of support to Fubon Insurance poses a negative impact on the ratings of Fubon Insurance. Positive rating actions could occur if there is a material and sustained improvement in Fubon Insurance’s risk-adjusted capitalisation.
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.