AM BEST DOWNGRADES CREDIT RATINGS OF HOTAI INSURANCE

KUALA LUMPUR, Dec 5 (Bernama) -- AM Best has downgraded the financial strength rating of Taiwan’s Hotai Insurance Co Ltd to B++ (good) from A (excellent), as well as its long-term issuer credit rating to “bbb” (good) from “a” (excellent).

AM Best said, concurrently, the under review status of these credit ratings has been revised to “developing” implications from “negative”.

It said the ratings reflect Hotai Insurance’s balance sheet strength, which has been assessed as weak, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management, in addition to the support that the company receives from its ultimate parent, Ho Tai Motor Co Ltd (Ho Tai Motor).

“The rating downgrade reflects the material deterioration in Hotai Insurance’s risk-adjusted capitalisation from the strongest level in 2021 to the very weak level in its 2022 year-end projection, as measured by Best’s Capital Adequacy Ratio.

“This is mainly due to the very significant claims arising from pandemic insurance products, which exceeded the two rounds of capital injection from Ho Tai Motor that totalled NT$26.0 billion,” it said in a statement. (NT$100=RM14.33)

Moving forward, AM Best said it expects capital and surplus growth to resume through the full retention of earnings derived from profitable non-pandemic insurance underwriting, although it is unlikely to recover to pre-COVID-19 levels over the short- to intermediate-term.

“Hotai Insurance reported a significant net loss of NT$21.8 billion for the first nine months of 2022, compared to a net profit of NT$713 million during the same period last year.

“The ratings will remain under review with developing implications pending increased visibility of the pandemic insurance ultimate loss level and the magnitude of capital impact, as well as the level and timeliness of financial support from the parent company,” it said.

The rating agency said since Hotai Insurance was acquired in 2017, it has benefitted from Ho Tai Motor’s extensive network of car dealers to achieve rapid growth in the motor business, in addition to the active expansion in commercial and personal lines.

“Ho Tai Motor has been the top automotive distributor in Taiwan for two decades and holds a reasonable lead ahead of its competitors.

“AM Best expects that Hotai Insurance will continue to play a strategic role in Ho Tai Motor’s business ecosystem, and the group’s fundamentals will remain strong to provide explicit and implicit support to Hotai Insurance, as demonstrated by the capital injections,” it added.

AM Best said it would continue to hold discussions with Hotai Insurance’s management team on claims development and potential further contingency capital plans if needed to assess the impact on the company’s credit profile.

-- BERNAMA