S&P Assigns Taiwan’s First Insurance ‘BBB’ Rating

November 30, 2004

Standard & Poor’s Ratings Services announced that it has assigned its “BBB” insurer financial strength and counterparty credit ratings to Taiwan’s First Insurance Co. Ltd. with a stable outlook. At the same time S&P withdrew its previous “BBpi” public information rating on the company.

“The new ratings reflect the company’s satisfactory operating performance, strong capitalization, and improved liquidity,” stated S&P credit analyst Connie Wong. “These positive factors are moderated by the company’s relatively high exposure to risky assets and risk concentration,” she added.

S&P noted that “like many insurers in Taiwan, First Insurance is facing increasing pressure as a result of softening market conditions, and intensified competition as a result of deregulation. First Insurance has a modest market position. In 2003, it ranked 11th out of 15 with a market share of 4.3 percent in terms of direct premiums written. The majority of the company’s business consists of personal lines of insurance and small to midsize commercial business, and is mainly short tail.

“Most of its business is sourced through agents and its own sales force. Although the company has gradually increased its risk retention in recent years, its retained risk profile remains satisfactory as it has adequate reinsurance protection and has tightened its underwriting control.

“Motor insurance accounted for 57 percent of the company’s direct premiums written in 2003, higher than the market average of 46 percent in the same period. First Insurance’s overall operating performance has improved to a more satisfactory level after slightly below average performances in 2001 and 2002. The company’s underwriting performance has improved as a result of reduced catastrophe losses and increased retention of profitable business. A rise in premium prices from 2001 until mid-2003 also helped.

“In addition, the company has improved its risk management in recent years. Its combined ratio fell to 91 percent at the end of September 2004 from a peak of 109 percent at the end of 2001. First Insurance’s satisfactory earnings profile is supported by its consistently above average investment returns, which are mainly attributed to stable investment income from properties and favorable gains from equity investment.”

S&P said the company’s “capitalization is strong compared with its risks written on the basis of Standard & Poor’s risk capital analysis. At the end of 2003, the company’s solvency (shareholders’ funds over annualized net premiums) stood at 88 percent. If its officially required Taiwan dollar 1.6 billion [U.S. $50 million] special loss reserve had been included in the shareholders’ capital, the ratio would have increased to 143 percent.”

However, the rating agency also reported that First Insurance’s “solvency fell slightly during the first nine months of 2004 to 136 percent, however, as a result of rapid growth of net premiums, which rose by 16 percent in that period. First Insurance has relatively high exposure to risky assets including equities and property investments. It also has some risk concentration in several single large investments. Nevertheless, the company maintains adequate liquidity in the form of cash and short-term deposits, which accounted for 38 percent of its investment portfolio at the end of September 2004. The company’s liquidity has improved to a more satisfactory level following good growth of premium income and reduced claims payments in recent years.”

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