AM Best Places Credit Ratings of Hotai Insurance Co., Ltd. Under Review With Negative Implications

HONG KONG--(BUSINESS WIRE)--AM Best has placed under review with negative implications the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Hotai Insurance Co., Ltd. (Hotai Insurance) (Taiwan), in view of the company’s exposure to potentially significant claims related to pandemic insurance policies amid the deteriorated COVID-19 situation in Taiwan, and uncertainty of the magnitude of negative impact to the company’s credit fundamentals.

Based on latest available information provided by the company, Hotai Insurance’s risk-based capital ratio was 404.85% as of the end of April 2022. However, AM Best expects the total claims amount will continue to develop and may potentially lead to a capital event for the company. Notwithstanding, AM Best expects that Hotai Insurance likely will receive capital support from its ultimate parent, Hotai Motor Co., Ltd. (Hotai Motor), to replenish its capital strength if a capital event occurs, given the insurer’s strategic importance to the group’s motor business ecosystem, as well as the long-term operating and capital commitment provided by Hotai Insurance’s immediate parent as evidenced by a letter of undertaking. Nevertheless, the claims development of these pandemic insurance policies exposes the shortcomings of the company’s enterprise risk management with respect to underwriting risk control and risk accumulation management.

The ratings will remain under review with negative implications pending increased visibility of the pandemic insurance ultimate loss level and the magnitude of capital impact, as well as the level and timeliness of financial support from the parent. AM Best will continue to hold discussions with Hotai Insurance’s management team on claims development and contingency capital plans to assess the impact to the company’s credit profile.

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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