Best Affirms Taiwan’s Central Re Corp. ‘A-‘ Rating

April 8, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A-” (Excellent) and assigned an issuer credit rating of “a-” to Central Reinsurance Corporation (Central Re) (Taiwan). The outlook for both ratings is stable.

“The rating reflects Central Re’s consistent operating performance, prudent investment strategy, excellent presence in domestic markets and the capital injection commitment by its shareholders,” said Best.

“Central Re has established a strong profile in local markets as a result of its long operating history in Taiwan,” the bulletin continued. “Strong business relationships with domestic insurers have enabled Central Re to capture approximately 18 percent and 30 percent of market share in the non-life and life reinsurance market, respectively, in Taiwan in 2003.

“Central Re’s operating results were relatively stable despite the company being officially privatized in 2002. It recorded a growth of 16.2 percent in its net earnings to TWD 358.9 million (USD 10.5 million) in 2003. The company’s loss ratio improved to 66.1 percent in 2003 from 73.4 percent in 2001.

“Central Re maintains its conservative investment strategy. Cash, short term investments and fixed income securities accounted for about 75.2 percent of the company’s total assets in 2003, reflecting its strong degree of liquidity. Despite the prevailing low interest rate environment, Central Re’s investment portfolio still generated an overall investment yield of 2.8 percent.”

Best also noted that according to the rating agency’s “Capital Adequacy Ratio, which measures capitalization on a risk-adjusted basis,” Central Re is adequately capitalized. “Going forward, the company’s capital injection plan, along with its moderate premium growth approach, are likely to further enhance its capitalization in the near term.

“Offsetting factors include aggressive dividend repatriation, larger net catastrophic risk exposure, high underwriting leverage, limited international exposure and small underwriting capacity relative to other international reinsurers.

“Central Re’s adjusted net premium leverage of 1.73 times in 2003 is considered high. Despite the capital injection of TWD 600 million (USD 17.6 million), its capital base is small relative to that of other international competitors. The company’s high dividend payout will continue to slow down the growth of its surplus.

“Central Re derived more than 97 percent of its reinsurance premiums from Taiwan in 2003. Though the company seems reasonably well protected under the extensive retrocession program, its high business concentration in Taiwan could reflect potential volatility in its underwriting results due to the presence of natural perils in Taiwan. In light of the market liberalization in the reinsurance sector, Central Re is expected to face greater challenges in terms of business competition in the market place.”

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