Fubon Insurance expected to improve 2023 net results

Fubon Insurance’s 2023 full-year unaudited net loss is expected to be narrowed, says AM Best.

The net loss is mainly driven by adverse pandemic claims developments in the first quarter of 2023, as well as the partial bad debt provision made on the outstanding reinsurance recoverable.

AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating (FSR) of ‘A‘(Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of ‘a’ (Excellent) of Fubon Insurance. The outlook assigned to these credit ratings is negative.

Fubon Insurance’s ratings were placed under review with negative implications on February 2023, reflecting the uncertainty in the company’s capital position, which depended on its COVID-19 insurance loss development, heightened exposure to reinsurer credit risk, due to its sizeable reinsurance recoverable, and the amount of further capital support from Fubon Financial Holding, at that time.

As COVID-19 policies matured in the first half of 2023, and a second round of capital injection of NT$16bn ($510m) was completed in May 2023, the company’s non-consolidated capital and surplus, based on unaudited financial statements, recovered to NT$18.7bn at the end of 2023, from NT$4.5bn at year-end 2022.

Notwithstanding, the assigned negative outlook reflects concerns about the potential downward pressure on Fubon Insurance’s balance sheet strength, due to the heightened level of reinsurer credit risk pertaining to the collectability and lengthened timeline of the company’s sizeable reinsurance recoverable.

Fubon Insurance had arranged proportional reinsurance for its pandemic policies in 2021 and 2022, and although the reinsurance recoverable declined in 2023, reinsurance assets remain a significant proportion of the company’s capital position. If there is unfavourable resolution of disputes in reinsurance contracts without timely parental financial support, the company’s risk-adjusted capitalisation as measured by Best’s Capital Adequacy Ratio (BCAR) and liquidity may be subject to exacerbated pressure.

Parent

Fubon Financial Holding is the second-largest listed financial holding company in Taiwan in terms of total assets. Fubon Insurance plays a strategic role in the group’s financial platform and receives long-term operating and capital commitments from Fubon Financial Holding, as evidenced by the aforementioned capital injection.

The lift assessment reflects AM Best’s expectation that the parent will remain committed to providing additional financial support to Fubon Insurance in a timely manner to bolster its balance sheet strength, if needed as per the local Financial Holding Company Act.

Fubon Insurance Vietnam

Concurrently, AM Best has removed from under review with negative implications and affirmed the FSR of ‘B++’ (Good) and the Long-Term ICR of ‘bbb+’ (Good) of Fubon Insurance Vietnam. The outlook assigned to these ratings is stable. Additionally, AM Best has assigned the Vietnam National Scale Rating (NSR) of ‘aaa.VN’ (Exceptional) to Fubon Vietnam with a stable outlook.

The ratings reflect Fubon Vietnam’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings also factor in rating enhancement from its parent company, Fubon Insurance.

Fubon Vietnam benefits from its common branding and affiliation with the Fubon Group and receives implicit and explicit support, including areas of new product development, pricing and reserving, as well as management oversight. The company is considered important in supporting the group’s regional business growth objectives.