Best’s News & Research Service - August 10, 2023 09:10 AM (EDT)
AM Best Affirms Credit Ratings of Central Reinsurance Corporation
- August 10, 2023 09:10 AM (EDT)
Hong Kong //BestWire// - AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Central Reinsurance Corporation (Central Re) (Taiwan). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Central Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management.
Central Re’s balance sheet strength is underpinned by its strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). In 2022, the company experienced significant claims arising from pandemic insurance policies, as well as unrealised investment losses that dragged its capital and surplus. To bolster capital strength and prepare for future business development, the company received capital injection of TWD 3.3 billion from its shareholders on 23 December 2022. Other supportive factors for the balance sheet strength assessment include Central Re’s prudent investment strategy and comprehensive retrocession arrangement. The company’s investment portfolio remains diversified and liquid, with a majority of its assets in cash and investment-grade bonds. Going forward, AM Best expects Central Re to maintain a prudent investment strategy and mainly focus on low-risk, fixed-income investments.
Underwriting performance of Central Re’s domestic non-life portfolio deteriorated in 2022, mainly driven by a significant pandemic insurance loss, while its domestic life business continued to deliver a solid stream of earnings. The company’s overseas non-life business grew at a more subdued rate this year while underwriting results were impacted by some catastrophe losses. Given that the pandemic insurance loss is a one-off event, going forward, AM Best expects Central Re should be able to restore its underwriting profitability over the short to intermediate term. Investment results benefitted from stable investment income from the fixed-income assets, as well as dividend income, while fluctuations in currency exchange rates have added volatility to the investment results over the last few years. The company posted a consolidated net profit of TWD 253 million in 2022, with a five-year return on equity of 7.4% (2018 – 2022), based on adjusted capital and surplus.
Leveraging its long operating history as Taiwan’s sole domestic reinsurer, Central Re maintains solid and long-term relationships with local cedants. Conversely, the company has expanded its overseas business at moderate growth rates over the last few years, which accounted for about one-fifth of its overall underwriting portfolio as of year-end 2022. AM Best expects Central Re to uphold its prudent underwriting approach and strive for sustainable profitability, and over the intermediate term, benefit from the enhanced diversification in both geography and clientele.
Negative rating actions could occur if there is a significant decline in Central Re’s risk-adjusted capitalisation, due to unexpected large underwriting or investment losses. Negative rating actions could also arise if the company experiences sustained and adverse deterioration in its operating performance. Positive rating actions could occur if Central Re’s domestic and overseas underwriting portfolios demonstrate sustained and favourable results to strengthen its overall operating performance, while supporting its current business profile.
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.