HONG KONG: AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Union Insurance Company Limited of Taiwan. The outlook of these Credit Ratings is stable.

The ratings reflect Union’s balance sheet strength, which AM Best categorises 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). In 2019, Union increased its risk appetite in equity investments to enhance yields while it maintained liquidity through having the majority of its assets invested in cash and cash equivalents.

Going forward, AM Best expects the company to maintain an abundant buffer in risk-adjusted capitalisation to support its risk profile. Its prudent reinsurance arrangements, debt-free balance sheet and additional financial flexibility as a publicly listed company also contribute to its very strong level of balance sheet strength.

Union’s underwriting performance has been positive since 2017, primarily driven by its better-than-average loss experience in the voluntary motor business. Coupled with stable albeit low investment returns, the company has consistently generated net profits with a five-year average return on capital and surplus of 8.3%.

Notwithstanding, a partially offsetting factor is the exhaustion of the company’s special reserves for the compulsory motor line as at year-end 2019. Going forward, potential unfavourable underwriting experience in this line will directly impact the company’s operating performance.

Union Insurance Company remains a mid-sized player in Taiwan’s competitive non-life insurance market. Its market share edged down slightly in 2019, owing to its slower-than-industry growth during the year.

Its underwriting portfolio is comprised of a higher-than-industry average proportion of personal voluntary motor with car dealers continuing to be the largest premium contributor. Other major product lines include fire, accident, engineering and liability, which are distributed through direct sales, brokers and agents.

While Union Insurance Company 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.