S&P Affirms Taiwan Fire & Marine ‘BBB’ Ratings

November 30, 2004

Standard & Poor’s Ratings Services announced that it has affirmed its “BBB” insurer financial strength and counterparty credit ratings on Taiwan Fire & Marine Insurance Co. Ltd. (TFMI) with a stable outlook.

“The ratings reflect the company’s niche position in Taiwan’s commercial insurance market, satisfactory operating performance, strong capitalization, and good investment profile,” stated S&P credit analyst Jacphanie Cheung.

“These factors are moderated by its modest market position, and, as with many of its peers, pressure on its underwriting performance amid softening market conditions and increasing competition as a result of deregulation,” S&P said.

The rating agency noted: “TFMI had a modest share of 3.6 percent of the Taiwan general insurance market in terms of direct premiums written in 2003, and ranked 13th out of 15 domestic insurers. However, it has a traditional niche and expertise in commercial lines of insurance particularly in the marine hull and aviation insurance sectors, in which it had leading market shares of 21 percent and 20 percent, respectively, at the end of 2003.

“In 2003, the company’s total gross premiums amounted to Taiwan dollar (NT$) 4.3 billion [U.S.$140 million], down by a slight 5.2 percent year on year because of the company’s efforts to tighten risk selection and premium softening, particularly in aviation insurance, its major line.

“On the other hand, the company’s net premiums increased by 20 percent in 2003 after a major change of reinsurance arrangement. Its retention ratio increased to 52 percent at the end of September 2004 from 37 percent at the end of 2002.

“TFMI’s overall operating performance is satisfactory, as reflected by an average return on revenue of 15.7 percent for the past five years. The company’s underwriting practices are considered prudent and its underwriting performance has improved in the past two years. This is reflected by fall in its combined ratio to 88.2 percent at the end of September 2004 from 94.8 percent at the end of 2003 and 107.4 percent at the end of 2002.”

S&P cited the reason for the improvement as “reduced catastrophe losses, and increased retained profits following a substantial increase in retention of profitable business lines.” It also indicated that ” TFMI’s capitalization with respect to risks written is strong, although it has declined because of greater retention of premiums. At the end of September 2004, the company’s shareholders’ funds stood at NT$4.2 billion [U.S. $129 million] and were further supported by NT$1.5 billion [U.S.$46 million] in special loss reserves.

“The company’s annualized solvency ratio (shareholders’ funds to annualized net premiums) was 196 percent at the end of September 2004, or 284 percent if the special loss reserves had been included in its shareholders’ funds.

“‘TFMI’s investment profile is good with satisfactory liquidity and favorable returns compared with its domestic peers. The good performance is attributable to the company’s prudent investment approach and its relatively high holdings of investment properties with satisfactory rental yields and favorable investment gains. Although the company’s exposure to investment properties is high compared with the exposure of its peers, it has maintained adequate liquidity in the form of cash and short-term notes (49 percent of its investment portfolio).”

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