OREANDA-NEWS. Fitch Ratings has affirmed Taiwan-based Union Insurance Company's (Union) Insurer Financial Strength (IFS) Rating at 'A-' and its National IFS Rating at 'AA(twn)'. The Outlook is Stable.

KEY RATING DRIVERS
The affirmation reflects Union's consistently strong capitalisation, prudent insurance underwriting practices and liquid balance sheet. The company's moderate franchise is the key rating constraint.

Union's statutory risk-based capital ratio was sound at above 300% at end-1H15, 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 shareholders' surplus (including shareholders' fund and claims equalisation reserve) of around 1x from 2011-9M15.

Investments remain prudent and liquid, with cash and cash equivalents accounting for 72.3% of invested assets at end-9M15, comfortably supporting its insurance claims. Credit quality in fixed-income portfolios remained sound as they were mainly government bonds. The company reduced its equity exposures to only 3.4% of shareholders' equity at end-9M15 amid heightened market volatility.

Union's annualised return on average equity (ROAE) was steady at 3.9% in 9M15 (3.3% in 2014) as weaker investment performance offset the impact of an improved underwriting result. The combined ratio decreased to 94% in 9M15 from 103% in 2014.

RATING SENSITIVITIES
An upgrade is unlikely in the near to medium future because of 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.