Best Assigns ‘A-‘ Rating to Taiwan’s Central Re

February 17, 2004

A.M. Best Co. announced that it has assigned a financial strength rating of “A-” (Excellent) to Taiwan’s Central Reinsurance Corporation with a stable outlook.

“The rating reflects the company’s well-established local presence, liquid assets, consistently strong operating performance, as well as its planned capital injections in the coming two years,” said Best. “Central Re, which was established in 1968 by the local government, is the sole domestic professional reinsurer in Taiwan. It has approximately 17 percent of the domestic non-life market share. For the past five years, its underwriting performance has been profitable, with the combined ratio consistently maintained at a level below 100 percent.”

It also noted that the company “maintains strong liquidity within its investment portfolio. As of December 2002, the combination of cash and bonds–including government bonds and corporate bonds–were about 84 percent of the total assets. The Best’s Capital Adequacy Ratio, which measures capitalization on a risk-adjusted basis, demonstrates that the company is moderately capitalized. The plan to increase its capital stock to TWD 5.0 billion (USD 143 million) by the end of 2005 will strengthen the capital position of the company.”

“Offsetting factors” cited by Best include “its high underwriting leverage, aggressive dividend payout level and restricted underwriting capacity.” The report noted that “Central Re’s underwriting capacity is limited given its capital position relative to other international reinsurers. Its net premiums written to adjusted capital and surplus was 1.89 times in 2002 (this was relatively high compared to its Asian competitors). The repatriation of large profits from the company by its shareholders in recent years has also affected the growth of its surplus position. The five-year average dividend payout ratio currently stands at a level of 75.4 percent.”

It also pointed out that the Evergreen Group, a Taiwanese conglomerate, has become the largest shareholder, following the company’s privatization, which reduced the government’s stake to 32.88 percent. “With this change, despite the existing experience of the Evergreen Group in the reinsurance business, challenges still remain for the new management to operate more effectively within the local/international reinsurance marketplace,” Best concluded.

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