HONG KONG--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of South China Insurance Company Limited (South China Insurance) (Taiwan). The outlook for both ratings is stable.
The rating affirmations are reflective of South China Insurance’s supportive level of risk-adjusted capitalization, historical favorable operating performance and the distribution support and risk management the company gains as part of Hua Nan Financial Holdings Co. Limited. South China Insurance has achieved a stronger market presence, representing 5.1% of the industry’s direct premiums written in 2009 versus 4.8% in 2008 (further increased to 5.4% as of the third quarter of 2010).
South China Insurance has continued to sustain profitable underwriting performance, as indicated by its improved expense ratios in recent years, through management’s initiatives in expense control in the major motor portfolio. With solid investment income and capital gains, the company’s profitable operating performance has resulted in favorable pretax operating returns in four years of the last five-year period.
The company’s risk-adjusted capitalization is driven by moderate underwriting leverage and a stable investment risk profile with favorable liquidity. With South China Insurance’s gradual increase in its net retention ratio over recent years, the company’s underwriting leverage is expected to remain at 1.4 times through 2010. A.M. Best anticipates that the company’s risk-adjusted capital is likely to remain sound considering its projected business growth, despite the increasing premium retention level prospectively.
Offsetting rating factors are South China Insurance’s lower underwriting profitability and the continuing challenging market conditions within Taiwan’s non-life insurance market.
As of September 30, 2010, the underwriting results of South China Insurance have been impacted by typhoon Fanapi in Taiwan. The loss ratio increased to 54% compared to 51% for the same period in 2009. In view of the increasing claims costs and competitive pressures in premium rates in its key motor and fire portfolio, South China Insurance’s overall combined ratio is expected to increase for 2010 and 2011, relative to the 2009 level.
As with the industry, South China Insurance experienced negative growth in business volume in 2009. Going forward, the company will continue to face challenges in attracting business under an increasingly competitive environment, which is indicative of its anticipated modest growth for 2010 and 2011.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: Additional key criteria utilized include: “Understanding BCAR for Property/Casualty Insurers”; “Assessing Country Risk”; “Natural Catastrophe Stress Test Methodology”; and “Rating Members of Insurance Groups.” Methodologies can be found at www.ambest.com/ratings/methodology.
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