Taiwan's second biggest non-life insurer Cathay Century Insurance Company has returned to the black, with a full-year net profit of NT$1.2bn ($37.5m) in 2023 from a net loss of NT$19.6bn in 2022 which was predominantly attributed to COVID-19 pandemic insurance claims, says AM Best.
However, profitability has not yet recovered fully to pre-pandemic levels as there were still pandemic-related claims incurred in the first half of 2023. After the large pandemic losses in the prior year, Cathay Century’s net loss ratio significantly declined to 66.6% in 2023
Meanwhile, the expense ratio stood at 36.4% and was lower than the industry average, thanks to the sizeable underwriting book of business and better economies of scale. In particular, Cathay Century’s major business line of voluntary motor has contributed to a sustained underwriting margin, supported by its continued efforts to be risk-selective and gradually refine the composition of business, coupled with rate adjustments.
Ratings affirmed
AM Best has affirmed Cathay Century’s Financial Strength Rating of ‘A’ (Excellent) and the Long-Term Issuer Credit Rating of ‘a’ (Excellent). The outlook of these credit ratings is ‘Stable’.
The ratings reflect Cathay Century’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
Capital
Cathay Century’s consolidated adjusted capital and surplus recovered by 16% to NT$15.7bn at year-end 2023, driven by the retention of net profit derived from underwriting and investment results. Cathay Century’s risk-adjusted capitalisation remained at the very strong level at the end of 2023, as measured by Best’s Capital Adequacy Ratio (BCAR).
Other supportive factors of the balance sheet strength assessment include the company’s diversified investment portfolio that focuses on low-risk fixed-income securities, good liquidity, comprehensive reinsurance arrangements, and the strong financial flexibility afforded by the ultimate parent, Cathay Financial Holding.
Going forward, AM Best expects Cathay Century to maintain its robust level of risk-adjusted capitalisation supported by organic growth in retained earnings from controlled expansion in underwriting and investment risks.
Business profile
Cathay Century has a market share of 13.3% in terms of direct premiums written (DPW) in 2023 in Taiwan’s non-life insurance sector.
The company’s underwriting portfolio is diversified moderately with motor being a major line of business, accounting for over half of the company’s DPW in 2023, followed by fire, accident and health businesses. The portfolio is skewed toward personal lines insurance products.
Cathay Century continues to leverage the comprehensive business network of its parent group and affiliated distribution channels to grow its underwriting portfolio. In addition, the company has refined and strengthened its risk management by reviewing product design and underwriting control, following the significant pandemic insurance claims. Cathay Financial Holding also has collaborated with Cathay Century to provide risk oversight support and resources.