HONG KONG--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Hotai Insurance Co., Ltd. (Hotai Insurance) (Taiwan). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Hotai Insurance’s balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management. The ratings also reflect the support the company receives from its ultimate parent, Ho Tai Motor Co., Ltd. (Ho Tai Motor).
The company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remained supportive of its risk profile despite the robust growth in underwriting leverage and increase in asset risk since the early 2017 change in ownership. Going forward, AM Best expects the company to continue monitoring its business execution risk and other key risks closely, including underwriting and catastrophe exposure to mitigate unexpected volatility in capital strength.
Over the past five years, the company’s underwriting results have experienced negative impact from the higher-than-average expense ratio. Since 2017, the company has been expanding its premium base actively, in particular motor insurance, in order to achieve better economies of scale. While this should offset any rising pressure on its loss ratio due to the change in product mix and enlarged risk appetite, AM Best believes that a sustained improvement in the company’s underwriting profitability can be achieved over a longer term.
Leveraging the parent group’s competitive strength as the largest auto distributor in Taiwan and its extensive distribution network, coupled with the effort to deepen relationships with other business partners, including tied agents and local brokers, the company is striving to achieve a balanced underwriting portfolio with a focus on motor business.
Offsetting rating factors include the uncertainties arising from the fast-evolving business plan and the associated operational and execution risks, in particular the initiative to tap growth potential across different product lines amid the continued competitive conditions in its domestic market.
Positive rating actions could occur if Hotai Insurance can demonstrate sustained improvements in underwriting performance in line with its business plan while maintaining a supportive level of risk-adjusted capitalization. Negative rating actions could occur if a higher-than-expected risk profile leads to a sharp decline in the company’s risk-adjusted capitalization or if the level of business commitment from the affiliated distribution channel decreases significantly. Negative rating actions also could occur if there is a material deterioration in Ho Tai Motor’s credit profile or if the level of business commitment from the affiliated distribution channel decreases significantly.
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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