Taiwanese reinsurer Central Reinsurance Corp's (Central Re) satisfactory underwriting performance is expected to continue throughout 2024, driven by profitable core business with a heavier exposure to retail clients, says S&P Global Ratings (S&P).
The global credit rating agency notes that Central Re's liability exposure to a major earthquake in Taiwan in April 2024 resulted in a slight increase in the combined ratio, albeit manageable in S&P’s view. The reinsurer posted underwriting profit for the first half of 2024 as indicated by the combined ratio of around 97.7%, albeit slightly weaker than the 95.9% it reported for 2023.
Excluding a dip in underwriting performance from COVID-19-pandemic-related claims in 2022, Central Re's combined ratio has consistently been slightly better than similarly rated reinsurers in Asia Pacific. This is demonstrated by Central Re's satisfactory average combined ratio of 95.1% for the five years ending 2023, excluding 2022.
Ratings affirmed
S&P has affirmed Central Re’s 'A' long-term local currency insurer financial strength and issuer credit ratings. The outlook on the ratings remains ‘Stable’.
The affirmation reflects Central Re's strong direct relationships with local clients, as well as its solid domestic market position, very strong capital and earnings, and satisfactory operating performance, the agency says.
The ‘Stable’ rating outlook reflects S&P’s view that Central Re will maintain very strong capital and earnings through prudent growth and a moderate risk appetite for catastrophe and investment risks over the next one to two years. That's despite the reinsurer's smaller absolute capital size compared with other international reinsurers.
Capital position
Central Re is expected too to maintain very strong capital and earnings with a solid buffer over the next two years. The reinsurer's capital adequacy is sensitive to its investment allocation. This is due to Central Re's pursuit of enhanced investment yields through an increased equity stock allocation in its investments. The equity stock investment allocation ratio increased to 15% at the end of June 2024 from 13% at the end of 2023. S&P believes Central Re will not pursue an overly aggressive investment strategy and we anticipate the company will actively adjust its exposure to prevent material weakening in its capital adequacy.
Liquidity
Liquidity has strengthened under S&P’s refined calculation. S&P’s assessment is that Central Re's liquidity ratio remains above the agency’s threshold for exceptional liquidity as of 30 June 2024. This follows refinements to S&P’s calculation of the liquidity ratio which now indicates the reinsurer's insurance liability duration averages around two years—longer than S&P’s previous estimate of one year. This helps to lower the stressed liquidity needed for its insurance liability.
In S&P’s view, Central Re is likely to remain exceptional over the next one to two years, given the agency’s forecast of its well-managed stressed insurance liabilities and invested asset allocation largely in liquid assets. These include equities and high-grade bonds. S&P has therefore revised its liquidity assessment for Central Re to ‘Exceptional’ from ‘Adequate’.
Business profile
Central Re is the only domestic reinsurer in Taiwan, where it holds a strong competitive position; however, several factors somewhat offset Central Re's rating strengths. These include the reinsurer's small scale and less geographic diversification than other reinsurers in Asia, as well as the volatile nature of the reinsurance business, given its exposure to catastrophe risks.
S&P also anticipates Central Re will maintain a solid domestic market position and remain prudent when exploring the international reinsurance market over the next one to two years.