Best Affirms Central Re Ratings

A.M. Best Co. has affirmed the financial strength rating of “A-” (Excellent) and the issuer credit rating of “a-” of Taiwan’s Central Reinsurance Corporation with a stable outlook.

“The affirmation of the ratings reflects Central Re’s strengthened risk-based capitalization, strong domestic market profile and stable operating performance,” said Best. “The ratings also factor the support from Central Re’s shareholders and the prospective profitable growth in business.”

Best also noted that, “following a series of capital injections in recent years, Central Re has made a remarkable improvement in capitalization, with the capital and surplus reaching NTD 6.38 billion (USD 200 million). The risk-based capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), has demonstrated the strengthened capitalization.

“Central Re has a long established relationship with domestic insurers. The company has successfully demonstrated its strong market profile by maintaining its preferred status in the domestic market after the revocation of the Central Reinsurance Corporation Act in 2002. In 2005, Central Re had about a 22 percent non-life market share in Taiwan. The long established client relationship and the reciprocal retrocession strategy have played a key role in maintaining the current market position. The strong domestic premium income has provided a solid foundation for Central Re to explore opportunities in regional markets for continuous growth and development.

“Throughout the past five years, Central Re has maintained a profitable and stable operation, with the combined ratio falling within the 95 percent to 97 percent level. Given that Taiwan is a catastrophe-prone country, Central Re’s stable and consistent operating performance has demonstrated its prudent underwriting controls and risk management practices. In addition, A.M. Best also recognizes the company’s continued efforts in enterprise risk management (ERM) to create a more sustainable advantage for the operation.”

However, Best said “the competitive domestic market condition, relatively high underwriting leverage and increasing aggregate risk exposure,” should be considered as offsetting factors.

“Following the entry of foreign participants, the domestic primary market has trended toward stronger capacity and higher retention,” said best. “The fierce pricing competition persists. These factors translate into a lower premium growth for Central Re and accelerate the potential for more prospective volatile results.

“Compared with regional peers, Central Re has a relatively high net premium leverage ratio, standing at 1.34 times. As a domestic reinsurer focusing mainly on Taiwan, the company’s aggregate risk exposure will continue to increase with larger premium volume, and A.M. Best remains cautious about the steady increase in aggregate risk exposure. In the meantime, the intensifying competition from the regional reinsurers, whose capitalization has also been increased in recent years, shall continue to pose challenges to Central Re going forward.”