AM Best Affirms Credit Ratings of South China Insurance Co., Ltd.
AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a" (Excellent) of South China Insurance Co., Ltd. (South China Insurance) (Taiwan). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect South China Insurance'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.
South China Insurance's risk-adjusted capitalisation remained at the strongest level at year-end 2022, as measured by Best's Capital Adequacy Ratio (BCAR). The company's adjusted capital and surplus, including special reserves provisioned for the non-compulsory auto liability insurance business, declined by 14.3% to TWD 6.9 billion (USD 224.6 million) in 2022, primarily driven by unfavourable capital losses through other comprehensive income, as well as dividend payout, while its statutory solvency ratio remained at a healthy level. South China Insurance's investment portfolio remains liquid and diversified with a majority of its assets held in investment grade bonds and cash, and it continues to manage currency risk in the investment portfolio through currency hedging. The company is exposed to a low and controlled level of ultimate claims arising from pandemic-related insurance products. South China Insurance's adjusted capital and surplus recovered during the first nine months of 2023. AM Best expects its BCAR and balance sheet strength will remain supportive of the current ratings over the short to intermediate term.
South China Insurance has remained profitable over the last few years, with a five-year average return-on-equity ratio of 8.2% (2018?2022). In 2022, the company posted a 72% year-on-year decline in net profit due to a narrowed underwriting margin and unfavourable investment performance. The company reported high single-digit growth in gross premiums written in 2022, and the first nine months of 2023, supported by motor, fire and casualty products. While the company's operating earnings in 2022 was negatively impacted by deterioration in loss ratio, the stable stream of interest and dividend income generated from its investment portfolio contributed to partially offset capital market volatility. The company remained profitable during the first three quarters of 2023.
South China Insurance remains a medium-sized insurer in Taiwan's non-life market. The company's underwriting portfolio remains moderately diversified with motor dominating its business, followed by fire, personal accident and health and casualty insurance. The company continues to source its revenue from a diversified distribution network while leveraging cross-selling opportunities more broadly with its affiliates in Hua Nan Financial Holdings Co. Ltd.
Negative rating actions could occur if there is a material decline in South China Insurance's risk-adjusted capitalisation, for example, due to unexpectedly large underwriting or investment losses. Negative rating actions could also occur if there is a continued deteriorating trend or an increased level of adverse volatility in the company's operating performance. Although the likelihood is relatively low, positive rating actions could occur if South China Insurance achieves sustained improvement and stability in its operating performance while maintaining a robust level of risk-adjusted capitalisation.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best's Credit Ratings, Best's Performance Assessments, Best's Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best's Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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