AM Best Upgrades Issuer Credit Rating of Hotai Insurance Co., Ltd.
September 12 2024 - 10:50AM
Business Wire
AM Best has upgraded the Long-Term Issuer Credit Rating
(Long-Term ICR) to “bbb+” (Good) from “bbb” (Good) and affirmed the
Financial Strength Rating (FSR) of B++ (Good) of Hotai Insurance
Co., Ltd. (Hotai Insurance) (Taiwan). Additionally, AM Best has
revised the outlook of the FSR to positive from stable, while the
outlook of the Long-Term ICR is positive.
The Credit Ratings (ratings) reflect Hotai Insurance’s balance
sheet strength, which AM Best assesses as adequate, as well as its
adequate operating performance, neutral business profile and
marginal enterprise risk management (ERM). The ratings also reflect
the support that the company receives from its ultimate parent, Ho
Tai Motor Co., Ltd. (Ho Tai Motor).
The Long-Term ICR upgrade reflects the improvement in Hotai
Insurance’s risk-adjusted capitalisation, as measured by Best’s
Capital Adequacy Ratio (BCAR), to a weak level in 2023 from a very
weak level in 2022. The risk-adjusted capitalisation is expected to
improve further to an adequate level in 2024, based on Hotai
Insurance’s financial projections. The company’s reported capital
and surplus increased significantly in 2023 and continued to
improve in the first half of 2024, underpinned by the combined
results of multiple capital injections from its parent, retained
earnings derived from major reserve releases, realised gains from
property sales, as well as favourable underwriting and investment
results. Other supportive factors of the balance sheet strength
assessment include Hotai Insurance’s diversified investment
portfolio that focuses on low-risk fixed-income securities,
comprehensive reinsurance arrangements, and the ability to access
credit facilities in distressed times, which indicates good
financial flexibility and confidence in the parent group’s credit
fundamentals.
The positive outlooks reflect AM Best’s expectation that Hotai
Insurance will strengthen its risk-adjusted capitalisation
gradually to support a stronger balance sheet strength assessment
over the short to intermediate term, supported by organic growth in
retained earnings from controlled expansion in underwriting and
investment results.
Hotai Insurance reported a significant net loss of TWD 36.9
billion in 2022, predominantly attributed to pandemic-related
claims. The company returned to profit by closing 2023 with a
full-year net profit of TWD 3.7 billion, partially contributed by
the release of reserve related to pandemic insurance claims. AM
Best views the pandemic insurance losses recorded in fiscal-year
2022 as a one-off event and expects Hotai Insurance to deliver
favourable operating earnings going forward, supported by
profitable underwriting and investment results.
Hotai Insurance’s market ranking improved to seventh from 12th
in 2017 in terms of direct premiums in 2023, underpinned by robust
growth in the voluntary motor business with the support of Ho Tai
Motor’s extensive network of car dealers. Nevertheless, Hotai
Insurance’s ERM assessment remains marginal to reflect the
larger-than-industry average losses experienced by the company,
which exposed its shortcomings in corporate governance in product
risk and accumulation risk control, while the company has taken
mitigation actions over ERM.
AM Best continues to view Hotai Insurance as a strategic entity
in Ho Tai Motor’s business ecosystem and the group’s fundamentals
will remain strong to provide explicit and implicit support to
Hotai Insurance, as demonstrated by the capital injections and
support on brand recognition and distribution channel.
Positive rating actions could occur if there is a sustained
improvement in Hotai Insurance’s risk-adjusted capitalisation, for
example, due to a strengthened capital base from earnings retention
from underwriting and investment results. While the likelihood is
low in immediate term, positive rating actions also could occur if
Hotai Insurance continues to demonstrate improvement in enterprise
risk management, especially on the risk accumulation controls over
underwriting activities.
Negative rating actions could occur if the company’s
risk-adjusted capitalisation deteriorates. A deterioration in the
credit profile of the parent company or its level of support to
Hotai Insurance also may pose a negative impact on Hotai
Insurance’s ratings.
Ratings are communicated to rated entities prior to
publication. Unless stated otherwise, the ratings were not amended
subsequent to that communication.
This press release relates to Credit Ratings that have been
published on AM Best’s website. For all rating information relating
to the release and pertinent disclosures, including details of the
office responsible for issuing each of the individual ratings
referenced in this release, please see AM Best’s Recent Rating
Activity web page. For additional information regarding the use and
limitations of Credit Rating opinions, please view Guide to Best’s
Credit Ratings. For information on the proper use of Best’s Credit
Ratings, Best’s Performance Assessments, Best’s Preliminary Credit
Assessments and AM Best press releases, please view Guide to Proper
Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and
data analytics provider specialising in the insurance industry.
Headquartered in the United States, the company does business in
over 100 countries with regional offices in London, Amsterdam,
Dubai, Hong Kong, Singapore and Mexico City. For more information,
visit www.ambest.com.
Copyright © 2024 by A.M. Best Rating
Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240912223884/en/
Stephanie Mi Financial Analyst +852 2827
3402 stephanie.mi@ambest.com
Christopher Sharkey Associate Director, Public
Relations +1 908 882 2310
christopher.sharkey@ambest.com
James Chan Director, Analytics +852 2827
3418 james.chan@ambest.com
Al Slavin Senior Public Relations Specialist +1
908 882 2318 al.slavin@ambest.com