AM Best Affirms Credit Ratings of Central Reinsurance Corporation

HONG KONG--(BUSINESS WIRE)--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). The company’s capital and surplus continued to grow organically through partial retention of positive operating earnings in 2021.

Central Re is exposed to potentially significant claims arising from pandemic insurance policies. While the company took initiatives to rein in its risk exposure during the 2021 underwriting year, the ultimate claims amount remains subject to some uncertainty. Notwithstanding, AM Best expects the company’s risk-adjusted capitalisation to be resilient against such shocks. Moreover, AM Best views the company’s major shareholders as willing to provide capital support to enable the company to maintain its balance sheet strength and its capacity offering. In addition, AM Best expects the aforementioned claims to put material pressure on the company’s underwriting performance in 2022. However, the impact is considered one-off and AM Best expects the company to recoup the losses and restore its underwriting profitability over the short to intermediate term.

The company’s investment portfolio remains diversified and liquid, with a majority of those assets in cash and investment-grade bonds. Going forward, AM Best expects the company to maintain a prudent investment strategy and mainly focus on low-risk, fixed-income investments.

Central Re’s business continued to expand in 2021 while maintaining a track record of positive operating results with a five-year average return on equity of 9.5% (2017-2021), based on adjusted capital and surplus, supported by positive results in both its underwriting and investment portfolios.

Underwriting performance of the domestic non-life portfolio improved in 2021, driven by better claims experience in the motor, casualty and fire lines, while the domestic life business continued to deliver a solid stream of earnings. Overseas business grew at a more subdued rate this year and contributed favourable underwriting results. Investment results benefitted from favourable capital gains in 2021 and stable investment income from the fixed-income assets, while fluctuations in currency exchange rates have added volatility to the investment results over the past few years.

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 past few years, which accounted for about one-fifth of its overall underwriting portfolio as of year end 2021. AM Best expects the company 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 the company's risk-adjusted capitalisation, for example, due to materially larger-than-expected pandemic insurance claims and without timely financial support from shareholders. Negative rating actions could occur if the company experiences sustained and adverse deterioration in its operating performance. Positive rating actions could occur if the company's overseas underwriting portfolio demonstrates sustained and favourable results to strengthen the overall operating performance while supporting the company’s current business profile assessment.

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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