AM Best has commented that the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a” (Excellent) of Fubon Insurance Co., Ltd. (Fubon Insurance) (Taiwan) remain unchanged following the disclosure of another capital increase in the form of TWD16 billion (USD519 million) in cash. In addition, these Credit Ratings (ratings) remain under review with negative implications.
As per the public disclosure on 16 May 2023, Fubon Insurance’s ultimate parent, Fubon Financial Holding Co., Ltd. (Fubon Financial Holding), completed a capital injection of TWD16 billion to Fubon Insurance. This was the second capital raise for Fubon Insurance and follows a capital injection of TWD15 billion in August 2022.
AM Best currently assesses Fubon Insurance’s balance sheet strength at the adequate level. The company’s reported capital and surplus declined significantly by 88% from TWD45.4 billion at the end of 2021 to TWD5.2 billion at year-end 2022, and further declined to TWD1.9 billion as of 31 March 2023. The deterioration in capitalisation was mainly due to the significant claims arising from COVID-19 pandemic-related insurance products. As per the information provided by the company, following the second round of capital injection in May 2023, Fubon Insurance’s reported capital and surplus has recovered to approximately TWD17 billion, and the company has reported a turnaround in net profit since April 2023. Notwithstanding, the two rounds of capital injection totaled TWD31 billion, accounting for approximately half of the estimated ultimate net claims incurred. Going forward, AM Best expects Fubon Insurance’s capital and surplus to resume growth through the retention of net profit derived from non-pandemic insurance underwriting and investment results, although the capital position is unlikely to recover to its pre-COVID-19 level over the short to intermediate term.
Despite completing the two capital injections and the stabilisation of pandemic insurance losses with most policies having expired at the end of May, Fubon Insurance’s ratings remain under review with negative implications. The negative implications status is mainly due to the continued uncertainty from reinsurer credit risk due to Fubon Insurance’s sizeable reinsurance recoverable, with a total exposure of approximately TWD19 billion, as of May 2023. The company maintains ongoing discussions with reinsurer counterparties. Given the sizeable recoverable amount, in the event of potential major disputes in reinsurance contracts, the company’s capital position and liquidity may be subject to further pressure. Notwithstanding, AM Best views that the ultimate parent company, Fubon Financial Holding, will remain committed in providing additional financial support to Fubon Insurance in a timely manner to bolster the company’s balance sheet strength if needed.
AM Best views Fubon Insurance as being equipped with adequate liquidity to fulfill the short-term surge in claims. The company’s investment portfolio shrank as it sold some of its investments to pay out the sizeable insurance claims. In addition, the company has arranged short-term collateralised financing with financial institutions. The good level of financial flexibility and liquidity support contribute positively to the adequate balance sheet strength assessment.
AM Best will continue to hold discussions with Fubon Insurance’s management team on the status of reinsurance collectibles to assess the impact to the company’s credit profile.
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