AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Central Reinsurance Corporation (Central Re) (Taiwan). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Central Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management.

Central Re’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), remained at the strongest level at year-end 2023. The company’s adjusted capital and surplus increased by 10% to TWD 21 billion in 2023, underpinned by organic accumulation of operating profits during the year. Other supportive factors of the balance sheet strength assessment include Central Re’s prudent investment strategy, comprehensive retrocession arrangement and high financial flexibility. The company’s investment portfolio remains diversified and liquid, with the majority of assets invested in cash and investment-grade bonds. Going forward, AM Best expects Central Re to maintain a prudent investment strategy and mainly focus on low-risk, fixed-income investments.

Central Re posted a reported net profit of TWD 2.1 billion in 2023, with a five-year return on equity of 7.0% (2019 – 2023), based on adjusted capital and surplus. The underwriting performance of the company’s domestic non-life business recorded a recovery-driven growth in 2023, after being significantly affected by pandemic-related losses in the prior year, as its domestic life business continued to deliver a solid stream of earnings. Central Re’s overseas business reported modest profits in 2023, and underwriting performance was partially impacted by some catastrophe losses. Investment results benefitted from stable investment income from the fixed-income assets and dividend income, while fluctuations in currency exchange rates have added volatility to the investment results over the last few years.

Leveraging its long operating history as Taiwan’s sole domestic reinsurer, Central Re continues to benefit from solid and long-term relationships with local cedants. The company encountered a modest decline in domestic market share in recent years, given that its portfolio skews towards personal lines, while the local market saw more robust growth in commercial lines, AM Best views Central Re’s domestic market leadership in both life and non-life reinsurance segments will remain unchallenged over the medium term. In contrast, the company has expanded its overseas business at moderate growth rates over the last few years, which contributed to about one-fifth of its overall underwriting portfolio at year-end 2023. AM Best expects Central Re to uphold its prudent underwriting approach and strive for sustainable profitability, and over the intermediate term, benefit from the enhanced diversification in both its geography and clientele.

Negative rating actions could occur if there is a significant decline in Central Re’s risk-adjusted capitalisation, for example, due to unexpected large underwriting or investment losses. Negative rating actions could also arise if the company’s business profile exhibits a sustained diminishing trend that materially deviates from its indicated plans. Positive rating actions could occur if Central Re’s domestic and overseas underwriting portfolios demonstrate sustained and favourable results to strengthen its overall operating performance, while supporting its current business profile.

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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