A.M. Best Asia-Pacific Limited has affirmed the financial
strength rating of A- (Excellent) and issuer credit rating of “a-” of South
China Insurance Co., Ltd. (South China Insurance) (Taiwan). The
outlook for both ratings is stable.
The rating affirmations reflect South China Insurance’s sound
risk-adjusted capitalization, strong operating performance and continued
improvement in its market presence in Taiwan. The company has increased
its capital and surplus position through consistently favorable
underwriting results and the recovery of investment losses in prior
years. With management’s continuous efforts to enhance the quality and
efficiency of its distribution channels, South China Insurance increased
its market share to 5.6% for the first eleven months in 2012, from 4.7%
in 2007 in terms of direct premium written. South China Insurance also
benefits from its product distribution and risk management as a wholly
owned non-life insurance arm of Hua Nan Financial Holdings Co. Ltd.
Hua Nan Financial Holdings Co. Ltd. is one of the leading financial
conglomerates in the banking (wholly owned Hua Nan Commercial Bank),
asset management and other financial services business in Taiwan.
Partially offsetting these positive rating factors are South China
Insurance’s historical earnings volatility arising from investment and
weather-related losses and a high dividend payout, which has impeded the
company from further strengthening its risk-adjusted capitalization.
Moreover, the sustainability of business growth and underwriting
profitability remains challenged under the continuing competitive market
and pricing conditions in Taiwan.
Future positive rating actions could occur if South China Insurance can
demonstrate significant improvement in its market profile with quality
business and a sustainable favorable trend in its operating performance.
Alternatively, downward rating actions could occur if the company’s
risk-adjusted capitalization materially deteriorates or exhibits a
downward trend in underwriting or operating profitability.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Additional key criteria utilized
include: “Understanding Universal BCAR”; “Catastrophe Analysis in A.M.
Best Ratings”; and “Risk Management and the Rating Process for Insurance
Companies.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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