AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a" of South China Insurance Co., Ltd. (South China Insurance) (Taiwan). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect South China Insurance’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
South China Insurance’s risk-adjusted capitalisation remained at the strongest level at year-end 2019, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s adjusted capital and surplus, including special reserves provisioned for the non-compulsory auto liability insurance business, continued to grow in 2019 through partial retention of earnings and favourable unrealised capital gains and remained at a similar level as of third quarter 2020. The company’s investment assets are liquid and diversified, with the majority of its assets held as investment grade bonds and cash. Other factors supporting the company’s balance sheet strength include prudent reserving practices and a comprehensive reinsurance programme with reinsurer panels of good credit quality.
South China Insurance has demonstrated a track record of favourable and stable operating performance over the past years, supported by positive underwriting and investment results. The company’s return on adjusted equity was 9.6% in 2019 while the historical volatility has remained lower-than-average. Notwithstanding, the net loss ratio slightly increased in 2019, mainly driven by claims experience in the voluntary motor line, although this was partially offset by improved profitability in the fast-growing casualty and accident and health insurance segments. Its commission expense ratio also faced upward pressure as the company has continued to adjust its product and distribution strategies over the past years. The company’s investment results have been consistently positive and continue to support the overall operating performance through stable streams of interest and dividend income. The company’s profit after tax decreased slightly year-on-year, to TWD 465 million as of third quarter 2020.
South China Insurance remains a medium-sized insurer in Taiwan’s non-life market. The company’s underwriting portfolio remains moderately diversified with its major lines of business being motor, property and casualty. While over half of its gross premium written in 2019 was generated by the motor line, strong growth momentum in the casualty line in recent years has lowered its concentration in the motor business. The company continues to source its revenue from a diversified distribution network while leveraging cross-selling opportunities more broadly with its affiliates in the Hua Nan Financial Holdings Co. Ltd.
Although South China Insurance is well-positioned at its current rating levels, negative rating actions may occur if there is a material decline in the company’s risk-adjusted capitalisation, or if there is a continued deteriorating trend or an increased level of adverse volatility in its operating performance.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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