Hotai Insurance returned to profit by closing 2023 with a full-year net profit of NT$3.7bn ($115.8m), partially contributed by the release of reserve related to COVID-19 pandemic insurance claims, notes AM Best. The insurer reported a significant net loss of NT$36.9bn in 2022, predominantly attributed to pandemic-related claims.
AM Best views the pandemic insurance losses recorded in fiscal-year 2022 as a one-off event and expects Hotai Insurance to deliver favourable operating earnings going forward, supported by profitable underwriting and investment results.
Ratings upgraded
AM Best has upgraded Hotai Insurance’s Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” (Good) from ‘bbb’ (Good) and affirmed the insurer’s Financial Strength Rating (FSR) of ‘B++’ (Good). Additionally, AM Best has revised the outlook of the FSR to ‘Positive’ from ‘Stable’, while the outlook of the Long-Term ICR is ‘Positive’.
The credit ratings reflect Hotai Insurance’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management (ERM). The ratings also reflect the support that the company receives from its ultimate parent, Ho Tai Motor Co.
The Long-Term ICR upgrade reflects the improvement in Hotai Insurance’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), to a weak level in 2023 from a very weak level in 2022.
The risk-adjusted capitalisation is expected to improve further to an adequate level in 2024, based on Hotai Insurance’s financial projections. The company’s reported capital and surplus increased significantly in 2023 and continued to improve in the first half of 2024, underpinned by the combined results of multiple capital injections from its parent, retained earnings derived from major reserve releases, realised gains from property sales, as well as favourable underwriting and investment results.
Other supportive factors of the balance sheet strength assessment include Hotai Insurance’s diversified investment portfolio that focuses on low-risk fixed-income securities, comprehensive reinsurance arrangements, and the ability to access credit facilities in distressed times, which indicates good financial flexibility and confidence in the parent group’s credit fundamentals.
The ‘Positive’ outlooks reflect AM Best’s expectation that Hotai Insurance will strengthen its risk-adjusted capitalisation gradually to support a stronger balance sheet strength assessment over the short to intermediate term, supported by organic growth in retained earnings from controlled expansion in underwriting and investment results.
Business profile
Hotai Insurance’s market ranking improved to seventh from 12th in 2017 in terms of direct premiums in 2023, underpinned by robust growth in the voluntary motor business with the support of Ho Tai Motor’s extensive network of car dealers.
Nevertheless, Hotai Insurance’s ERM assessment remains marginal to reflect the larger-than-industry average losses experienced by the company, which exposed its shortcomings in corporate governance in product risk and accumulation risk control, while the company has taken mitigation actions over ERM.
AM Best continues to view Hotai Insurance as a strategic entity 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 and support on brand recognition and distribution channel.