S&P Assigns ‘BBB’ Rating to Taiwan’s Taian Insurance

Standard & Poor’s Ratings Services announced that it has assigned its “BBB” long-term insurer financial strength and counterparty credit ratings to Taian Insurance Co. Ltd. with a stable outlook. As a consequence S&P has withdrawn its “BBBpi” public information rating on the company.

“The ratings reflect the company’s satisfactory operating performance and strong capitalization,” stated S&P credit analyst Andy Chang. “Moderating factors include the company’s relatively high exposure to equity investment and a highly competitive operating environment.”

S&P described Taian as “a mid-size nonlife insurer in Taiwan with a niche position in personal insurance lines. The company wrote Taiwan dollar (NT$) 6.4 billion [U.S. $205 million] worth of direct premiums in 2004, representing a market share of 5.5 percent, similar to its average market share in 1999-2003.

“Taian Insurance’s business is mostly short-tail, consisting of motor insurance (57 percent of its total direct premiums in 2004), followed by fire insurance (18 percent), marine insurance (7 percent), aviation insurance (6 percent), and others (12 percent).

“Its sales force generated about 50 percent of its 2004 direct premiums, and insurance brokers and car dealers each contributed about 15 percent. Taian Insurance has also established strategic alliances with banks and life insurers, which together contributed about 10 percent of its total direct premiums in 2004.”

S&P said: “Taian Insurance’s operating performance is satisfactory despite a volatile investment performance. The company has consistently reported a stable combined ratio, which averaged 97 percent in 2000-2004. Its total investment return ranged between negative 5.9 percent and positive 5.9 percent in 2000-2004, reflecting its high exposure to equity investment.

“Taian Insurance’s liquidity is about average. Highly liquid assets, such as cash and government bonds, accounted for about 50 percent of its total investment portfolio. The asset quality of its fixed income portfolio (20 percent of total invested assets) is considered average by domestic standards. The company plans to gradually reduce its equity and venture capital investments (23 percent of total invested assets), which have been largely responsible for its volatile investment performance in the past, in favor of fixed income securities.

“Taian Insurance’s capitalization is strong compared with its risks written. The company reported shareholders’ funds of NT$3.4 billion and a special loss reserve of NT$1.9 billion at the end of 2004. The company’s ratio of shareholders’ funds to net premiums stood at 101 percent in 2004, and averaged 97 percent in 1999-2003. Its capitalization is also supported by its adequate reserve and reinsurance protection. Like most Taiwan insurance companies, the company relies heavily on reinsurance. Taian Insurance’s retention ratio was about 47 percent in 2004, lower than the industry average of 52 percent, but it is likely to increase its retention ratio over the medium term.”