27.04.2015, 13:10
Fitch Upgrades Union Insurance to IFS 'A-'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has upgraded Taiwan-based Union Insurance Company's (Union) Insurer Financial Strength (IFS) Rating to 'A-' from 'BBB+' and its National IFS Rating to 'AA(twn)' from 'AA-(twn)'. The Outlook has been revised to Stable from Positive.
KEY RATING DRIVERS
The rating upgrade reflects improved sustainability in Union's underwriting performance following efforts over several years to restructure products, as well as consistently strong capitalisation and maintenance of a liquid balance sheet.
Union's focus on expanding business segments with favourable loss ratios (such as in commercial motor) has resulted in a rise in the share of commercial motor to 51% of 2014 direct-written premiums, compared with 37% in 2010. The change in product mix led to an improvement in Union's combined ratio to 96.5% in 2014 (excluding the one-off claim reserve adjustment of TWD298m in compulsory motor) and 93% in 2013 from 107.1% in 2012. The significant one-off reserve adjustment dragged down its bottom-line ROE to 3.3% in 2014 from 9.6% in 2013. The ratings are based on Fitch's expectation that Union's earnings in 2015 will normalise at close to the level reported in 2013.
Union's statutory risk-based capital ratio was sound at above 300% at end-2014, compared with the regulatory minimum of 200%. Its capital position provides a strong buffer against adverse reserve developments, particularly in view of its low underwriting leverage - with net written premiums/adjusted equity (including shareholders' fund and claims equalisation reserve) at around 1x from 2010-2014.
Investments remain prudent and liquid, with cash and cash equivalents accounting for 63% of invested assets at end-2014, comfortably supporting its insurance claims. Credit quality in Union's fixed-income portfolio remained sound as it invested mainly in government bonds. Equity exposures remained manageable, representing a moderate 12% of adjusted equity as of end-2014.
RATING SENSITIVITIES
An upgrade is unlikely in the near to medium future, constrained by Union's modest market position and business scale. Deterioration in underwriting performance with combined ratio persistently above 103% or substantial underwriting or investment losses resulting in a fall in Union's statutory capital ratio to below 300%, on a sustained basis, are key triggers for a rating downgrade.
KEY RATING DRIVERS
The rating upgrade reflects improved sustainability in Union's underwriting performance following efforts over several years to restructure products, as well as consistently strong capitalisation and maintenance of a liquid balance sheet.
Union's focus on expanding business segments with favourable loss ratios (such as in commercial motor) has resulted in a rise in the share of commercial motor to 51% of 2014 direct-written premiums, compared with 37% in 2010. The change in product mix led to an improvement in Union's combined ratio to 96.5% in 2014 (excluding the one-off claim reserve adjustment of TWD298m in compulsory motor) and 93% in 2013 from 107.1% in 2012. The significant one-off reserve adjustment dragged down its bottom-line ROE to 3.3% in 2014 from 9.6% in 2013. The ratings are based on Fitch's expectation that Union's earnings in 2015 will normalise at close to the level reported in 2013.
Union's statutory risk-based capital ratio was sound at above 300% at end-2014, compared with the regulatory minimum of 200%. Its capital position provides a strong buffer against adverse reserve developments, particularly in view of its low underwriting leverage - with net written premiums/adjusted equity (including shareholders' fund and claims equalisation reserve) at around 1x from 2010-2014.
Investments remain prudent and liquid, with cash and cash equivalents accounting for 63% of invested assets at end-2014, comfortably supporting its insurance claims. Credit quality in Union's fixed-income portfolio remained sound as it invested mainly in government bonds. Equity exposures remained manageable, representing a moderate 12% of adjusted equity as of end-2014.
RATING SENSITIVITIES
An upgrade is unlikely in the near to medium future, constrained by Union's modest market position and business scale. Deterioration in underwriting performance with combined ratio persistently above 103% or substantial underwriting or investment losses resulting in a fall in Union's statutory capital ratio to below 300%, on a sustained basis, are key triggers for a rating downgrade.
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