AM Best Affirms Credit Ratings for Cathay Century Insurance Company Limited

HONG KONG, 05 September 2024–(WORK WIRE)–AM The Best Cathay Century Insurance Company Limited (Cathay Century) (Taiwan)’s Financial Strength Rating (A) and Long-Term Credit Rating (a) have been affirmed. The outlook for these Credit Ratings is stable.

The ratings reflect Cathay Century’s balance sheet strength, adequate operating performance, neutral business profile and appropriate enterprise risk management, which AM Best assesses as very strong.

Cathay Century’s consolidated adjusted capital and surplus recovered by 16% to TWD15.7 billion at year-end 2023, driven by the retention of net income from underwriting and investment results. Cathay Century’s risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR), remained very strong at year-end 2023. Other supporting factors for the balance sheet strength assessment include the company’s diversified investment portfolio focused on low-risk fixed income securities, good liquidity, comprehensive reinsurance arrangements and strong financial flexibility provided by ultimate parent Cathay Financial Holding Co., Ltd. (Cathay Financial Holding). Going forward, AM Best expects Cathay Century to maintain strong risk-adjusted capital, supported by organic growth in retained earnings from the controlled expansion of underwriting and investment exposures.

Cathay Century reported a net loss of TWD19.6 billion in 2022, mainly attributed to pandemic insurance claims. The company returned to profit with a full-year net profit of TWD1.2 billion in 2023, but profitability has not yet fully returned to pre-pandemic levels as pandemic-related claims are still being generated in the first half of 2023. Following major pandemic losses in the previous year, Cathay Century’s net loss ratio decreased significantly to 66.6% in 2023. Meanwhile, the expense ratio stood at 36.4%, below the industry average, thanks to a significant underwriting portfolio and better economies of scale. In particular, Cathay Century’s voluntary motor core business contributed to a sustainable underwriting margin, supported by its continued efforts to be risk selective and gradually improve the mix of the business, and supported by rate adjustments.

Cathay Century remains the second-largest insurer in Taiwan’s non-life sector, with a market share of 13.3% in terms of direct premiums written (DPW) in 2023. The company’s insurance portfolio is moderately diversified, with motor being the main business, accounting for more than half of the company’s DPW in 2023, followed by fire, casualty and health businesses. The portfolio is skewed toward personal lines insurance products. Cathay Century continues to leverage the extensive business network of its parent group and subsidiary distribution channels to grow its insurance portfolio. In addition, the company has improved and strengthened its risk management by reviewing product design and underwriting control following significant pandemic insurance demand. Cathay Financial Holding has also partnered with Cathay Century to provide risk oversight support and resources.

For example, negative rating actions could occur if there is a significant decline in Cathay Century’s risk-adjusted capital due to large unexpected collateral or investment losses and lack of timely capital support from its ultimate parent company, Cathay Financial Holding. A deterioration in the parent company’s credit profile or a decline in parent company support could also have a negative impact on Cathay Century’s ratings.

Although the probability is relatively low, positive rating actions could occur if Cathay Century achieves sustainable improvement and stability in operating performance while maintaining a solid level of risk-adjusted capitalization. An improvement in Cathay Financial Holding’s credit profile or an improved level of parental support could also have a positive impact on Cathay Century’s ratings.

Ratings are communicated to the rated entities prior to publication. Ratings have not been changed since that communication unless otherwise stated.

This press release relates to Credit Ratings published on AM Best’s website. For full rating information relating to this release and related disclosures, including details of the office responsible for issuing each rating referred to in this release, please visit AM Best’s Last Rating Event For additional information regarding the use and limitations of Credit Rating opinions, please see: Guide to Best’s Credit ScoresFor 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 see: Guide to Proper Use of Best’s Ratings and Reviews.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company operates in more than 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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Stephanie is mine
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