AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Union Insurance Company Limited (Union) (Taiwan). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Union’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.
Union’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), has been impacted negatively due to the sizeable losses arising from pandemic insurance as of year-end 2022. The risk-adjusted capitalisation has declined but stayed at the strongest level due to the sufficient capital buffer the company has maintained for the past few years. AM Best expects Union’s capital and surplus to resume growth through the retention of net profits derived from non-pandemic insurance underwriting and investment results over the intermediate term.
Union reported a significant net loss of TWD 1.3 billion as of year-end 2022, compared with a net profit of TWD 697 million for the full-year 2021, predominantly attributed to pandemic insurance claims. AM Best expects the ultimate claims are not likely to rise significantly in 2023, as the company’s monthly gross claims paid has shown a declining trend since December 2022. The company recorded stable top-line performance for non-pandemic insurance underwriting but reported investment loss due to unfavourable performance of its equity investments. The company has reduced its exposure to the domestic stock market as of year-end 2022.
AM Best considers the pandemic insurance loss as a one-off event, and Union should be able to recoup its losses gradually via the profitable non-pandemic insurance underwriting and positive investment income, although it is unlikely to do so over the short term.
Union is a medium-sized player in Taiwan’s non-life insurance market and ranked eighth in 2022 in terms of direct premium written. Similar to other players in the market, the company’s underwriting portfolio is diversified moderately but slightly skewed toward motor business, with other major business lines in fire and accident business. The company maintained a diversified distribution channel mix, with major business contributors in car dealers, direct channel, and brokers.
While Union is well-positioned at its current rating levels, negative rating actions could occur if Union exhibits sustained deterioration in operating performance, particularly in terms of the non-pandemic traditional underwriting portfolio and investment results, or there is a significant decline in its risk-adjusted capitalisation.
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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