Hong Kong, October 07, 2016 -- Moody's Investors Service has affirmed the A1 insurance financial strength
rating (IFSR) of Fubon Insurance Co., Ltd (Fubon Insurance).
The outlook on the rating is stable.
RATINGS RATIONALE
Fubon Insurance's A1 IFSR reflects its strong business profile,
strong capitalization, strong level of reserve adequacy and consistently
profitable underwriting performance.
Fubon Insurance is the market leader in Taiwan's property and casualty
(P&C) insurance sector, with a market share of 22.5%
by gross premium written as of FY2015. Its business mix shows good
diversification, with the majority in short-tail personal
lines. As a wholly-owned subsidiary of Fubon Financial Holding
Co., Ltd. (Fubon Financial, issuer rating Baa1
stable), one of the largest financial holding companies in Taiwan
(Aa3 stable), the company benefits from the group's extensive distribution
network and strong brand.
The insurer's capital strength is strong, as measured by its low
gross underwriting leverage at 1.6x at end-2015 and a high
local risk-based capital ratio at 520% at June 30,
2016, well above the regulatory preferred level of 200%.
However, its gross underwriting leverage has slightly picked up
as its premiums have grown over the past five years.
Fubon Insurance has expanded its market shares and delivered stable and
solid earnings over the past few years, driven by strong investment
gains and consistent underwriting profit. Taiwan contributed 88%
of the company's gross premiums written in 1H2016 and its combined ratio
was 94.4%. However, its underwriting business
in Mainland China (Aa3 negative) and Vietnam (B1 stable) remains unprofitable,
with combined ratios above 100%. As its China operations
continue to grow at a very fast pace, Moody's expects the
profitability of this segment will become more critical to the insurer.
The insurer has consistently reported a favorable loss development trend
in the past few years, reflecting its short-tail product
mix and prudent reserving practice. Fubon Insurance also has sizable
special reserves to absorb catastrophe losses when needed.
These strengths, however, are offset by its relatively high
exposure to equities. Equities represented 31% of its investment
portfolio at end-1H2016, and are concentrated in several
large Taiwanese corporates. Although these few large corporates
have offered stable dividend yields, its concentration exposes Fubon
Insurance's capitalization to potential volatility in Taiwan's equity
market.
The insurer also has a substantial exposure to real estate, mainly
comprising commercial properties in Taipei City. Nonetheless,
it increased its cash balance since 2014, which partly lowers the
liquidity risks stemming from its real estate investments, given
its relatively short-tail liabilities.
Furthermore, the insurer is exposed to substantial catastrophe risk,
such as earthquakes and typhoons in Taiwan. Such risks are mitigated
by the comprehensive reinsurance arrangement in place to limit the potential
net retained losses.
The company has no financial debt outstanding. At the Fubon Financial
level, its financial leverage and adjusted double leverage ratio
have picked up slightly owing to the increased investments in its subsidiaries
to 20.7% and 117%, respectively at June 30,
2016. Moody's views the group's plan for overseas expansion
may exert negative pressure on its financial flexibility given the capital
needs.
RATING DRIVERS
Fubon Insurance's credit profile is correlated to and constrained by that
of Fubon Financial, due to the linkages between the group and its
fellow subsidiaries' credit profiles, particularly in terms of financial
flexibility, as it has the strongest stand-alone credit profile
amongst all the other group's subsidiaries. Therefore, upward
pressure on Fubon Insurance's rating is unlikely, unless the ratings
of other key subsidiaries within the group are also upgraded.
On the other hand, the rating could be downgraded if there is:
(1) a sustained deterioration in capital strength, such as gross
underwriting leverage rising above 2x; (2) an erosion in profitability
or a significant increase in its combined ratio to above 100% on
a sustained basis; and/or (3) rating downgrades of other major Fubon
Financial subsidiaries, such as Taipei Fubon Commercial Bank Co
Ltd (deposits A2 stable, BCA baa2) and Fubon Life Insurance Co Ltd
(financial strength A3 stable).
The principal methodology used in this rating was Global Property and
Casualty Insurers published in June 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Fubon Insurance Co., Ltd. is the largest non-life
insurer in Taiwan. It is 100% owned by its parent,
Fubon Financial Holding Company Limited, which is a holding company
of subsidiaries with life insurance, banking and other financial
services operations primarily in Taiwan, China and Hong Kong.
As of end-June 2016, Fubon Insurance reported total assets
and shareholders' equity of TWD97.9 billion and TWD30.7
billion, respectively.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Frank Yuen
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Sally Yim
Senior Vice President
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
