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 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.
The balance sheet strength of the company is supported by its risk-adjusted capitalisation, which is at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Union’s investments remain highly liquid as the majority of its assets are invested in cash and deposits, as well as listed securities. Considering the low interest rate environment, the company has actively expanded its equity investments since 2019 to enhance yields. Union has also arranged appropriate reinsurance programmes to protect its capital against large claims and catastrophe risk. Its debt-free balance sheet and additional financial flexibility as a publicly listed company also contribute to its balance sheet strength. AM Best expects the company to maintain a sufficient buffer in its risk-adjusted capitalisation to support its risk profile over the short to intermediate term.
Union has consistently delivered net profits, with a five-year average return on adjusted capital and surplus of 9.6% (2016-2020). Its underwriting performance has been stable over the past few years due to better than average claims experience in voluntary motor. Nonetheless, the rising trend in its voluntary motor line’s loss ratio, coupled with the depletion of the company’s special reserves for compulsory motor, has placed pressure on its underwriting result. Conversely, Union’s investment yield has improved gradually since 2019 following its enlarged risk appetite. Prospectively, AM Best expects investment profits to drive the company’s bottom line, while underwriting profit should remain stable.
Union is a medium-size player in Taiw an’s competitive non-life insurance market. Although its market share has edged down gradually over the past three years, the company projects modest top line growth for next three years, with a stable underwriting portfolio comprised of motor, fire, accident, engineering and liability lines. Car dealers continue to be the largest premium contributor, but the company plans to grow other key channels including brokers and agents, as well as the comprehensive channel to diversify its distribution.
While Union is well-positioned at its current rating levels, negative rating actions could occur if there is a sustained deterioration in the company’s operating performance, or a significant decline in its risk-adjusted capitalisation.
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