AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Fubon Insurance Co., Ltd. (Fubon Insurance) (Taiwan). The outlook of these Credit Ratings (ratings) is negative.

The ratings reflect Fubon Insurance’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management. The ratings also reflect the support that the company receives from its ultimate parent, Fubon Financial Holding Co., Ltd. (Fubon Financial Holding).

AM Best expects Fubon Insurance’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), to improve from the weak level at year-end 2023, to the adequate level in 2024. The company’s consolidated reported capital and surplus (C&S) surged by 271% to TWD 19.4 billion in 2023, primarily driven by the capital injection from Fubon Financial Holding, albeit partially offset by the net loss during the same year. Based on the unaudited financial statements, Fubon Insurance’s non-consolidated C&S further increased in 2024, supported by the full retention of underwriting and investment earnings. Notwithstanding, the company’s capital position is unlikely to recover to its pre-COVID-19 pandemic level over the short to intermediate term.

The negative outlooks reflect AM Best’s concern about the potential downward pressure on Fubon Insurance’s balance sheet strength, which attributed to the heightened level of reinsurer credit risk pertaining to the collectability and lengthened timeline of the company’s sizeable reinsurance recoverable. The company had arranged for proportional reinsurance for its pandemic policies in 2021 and 2022. Although Fubon Insurance has made partial bad debt provisions over the last two years, the outstanding reinsurance recoverable amount remains as a sizeable proportion of the company’s capital position. If there is an unfavourable resolution of the disputes in reinsurance contracts without timely parental financial support, the insurer’s risk-adjusted capitalisation as measured by BCAR may be subject to further pressure.

Fubon Insurance posted a net loss of TWD 2.3 billion in 2023, predominantly driven by unfavourable pandemic claims development in the first half of the same year, as well as the aforementioned bad debt provisions. However, as per the company’s unaudited financials, Fubon Insurance is expected to deliver a strong turnaround to record a net profit with a double-digit return on equity in 2024, supported by the full profit retention of underwriting and investment results.

Fubon Insurance maintains its market-leading position in Taiwan’s non-life industry, with a market share of 23.9% in 2024, in terms of direct premiums written. The company continues to leverage the business network of its parent group in sourcing business, while maintaining a moderately diversified underwriting portfolio in terms of products.

Fubon Financial Holding is the second-largest listed financial holding company in Taiwan in terms of total assets. Fubon Insurance plays a strategic role in the group’s financial platform and receives long-term operating and capital commitments from Fubon Financial Holding, as evidenced by two rounds of capital injections during the pandemic. The lift assessment reflects AM Best’s expectation that the parent will remain committed to providing additional financial support to Fubon Insurance in a timely manner to bolster its balance sheet strength, if needed as per the local Financial Holding Company Act.

Negative rating actions could occur if there is unfavourable resolution of disputes in reinsurance contracts, without timely and sufficient capital replenishment from Fubon Financial Holding and/or Fubon Insurance’s other capital contingency plan, which will lead to a material deterioration in Fubon Insurance’s risk-adjusted capitalisation. Negative rating actions also could occur if Fubon Insurance executes an excessive dividend payout plan to the parent company, resulting in a slower speed of internal capital generation, along with the increasing risk exposure, which may further weaken the company’s risk-adjusted capitalisation. In addition, a material deterioration in the credit profile of Fubon Financial Holding, or its level of support to Fubon Insurance could pose a negative impact on the ratings of the company. Although it is unlikely in the near term, positive rating actions could arise if there is a material and sustained improvement in Fubon Insurance’s risk-adjusted capitalisation.

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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