S&P Affirms Taiwan’s Mingtai Fire & Marine ‘A’ Ratings

May 31, 2006

Standard & Poor’s Ratings Services has affirmed its “A” insurer financial strength and counterparty credit ratings on Taiwan’s Mingtai Fire & Marine Insurance Co. Ltd. with a stable outlook.

“The ratings on Mingtai Insurance reflect the company’s good market position, sound operating performance, prudent investment strategy, and good capitalization,” stated S&P credit analyst Connie Wong.

S&P also indicated that they “reflect a degree of implicit support from Mingtai Insurance’s Japan-based parent company, Mitsui Sumitomo Insurance Co. Ltd. (MSI, AA-/Positive/A-1+).”

However, S&P noted that these “strengths are partly offset by the company’s high use of reinsurance and the competitive operating environment in Taiwan. Mingtai Insurance is 100 percent-owned by MSI.

“The company’s financial flexibility has benefited from its close relationship with the MSI group. The integration of human resources, claim techniques, and investment practices is a work in progress, but the daily operations of Mingtai Insurance are still largely carried out on a stand-alone, autonomous basis.

“Mingtai Insurance’s market position is good,” S&P continued. “The company is the second-largest nonlife insurer in Taiwan, with a market share of 9 percent in 2005, in terms of gross premiums written, but will find it challenging to gain further market share amid increasingly competitive market conditions. Mingtai Insurance’s operating performance is sound. The company’s average return on revenue of 14.6 percent in 2001-2005 is attributed to its good underwriting performance and stable investment returns. Its combined ratio of 93.7 percent in 2005 bettered the industry’s average of about 96 percent.

“Mingtai Insurance’s overall loss ratio increased to 60 percent in 2005, up from 51 percent in 2004, mainly as a result of higher consumer credit claims and reserving to cover losses. However, Mingtai Insurance has cautiously adopted a 95 percent stop-loss threshold to limit the downside risk of its consumer credit insurance business.

“Mingtai Insurance has a prudent investment strategy, which is heavily weighted toward low-risk assets. The majority of its investment assets, which generate stable investment returns, are highly liquid. Cash and deposits accounted for about 57 percent of the company’s total invested assets at the end of 2005. Together with favorable operating cash flows, the company has sufficient liquidity to meet its near-term obligations.”

S&P characterized the Company’s capitalization, which strengthened in 2005, as “good.” It also noted that Mingtai’s “capital base is supported by its short-tail risk profile, solid earnings retention, and mandatory special reserves, which stood at New Taiwan dollar 3.7 billion at the end of 2005. Following its acquisition by MSI, Mingtai Insurance has adopted a more conservative dividend policy to generate capital growth. The company’s ratio of equity to net premium income increased to 56 percent at the end of 2005 from 53 percent at the end of 2004.”

In conclusion, S&P stressed that “Mingtai Insurance remains highly reliant on reinsurance–a common trait among nonlife insurance companies in Taiwan. However, the company has gradually increased its retention, leaving it potentially exposed to changing market conditions. In 2005, 52 percent of the company’s gross premiums written were ceded, down from 62 percent in 2000. Mingtai Insurance’s enhanced financial flexibility is likely to partly reduce this risk.”

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