AM Best upgrades the credit ratings of Hotai Insurance Co., Ltd. down, revises Under Review status for evolving implications – InsuranceNewsNet

HONG KONG–(BUSINESS WIRE)–
am the best has downgraded the Financial Strength Rating from A (Excellent) to B++ (Good) and the Long-Term Issuer Credit Rating from “a” (Excellent) to “bbb” (Good). Hotai Insurance Co.,Ltd. (Hotai Insurance) (Taiwan). At the same time, the “Under Review” status of these credit ratings has been changed from “Negative” to “Implications Developing”.

The ratings reflect Hotai Insurance’s balance sheet strength, which AM Best rates as weak, reasonable operational performance, neutral business profile and marginal enterprise risk management (ERM). The ratings also reflect the support the company has received from its ultimate parent, Ho Tai Motor Co., Ltd. (Ho Tai Motor) receives.

The ratings downgrade reflects the material deterioration in Hotai Insurance’s risk-adjusted capital position from the strongest level in 2021 to the very weak level in the 2022 year-end forecast, as measured by Best’s capital adequacy ratio (BCAR). This is mainly driven by the very material claims Pandemic insurance products that exceeded the sum of Ho Tai Motor’s two capital injections TWD 26.0 billion. Given Hotai Insurance’s cash and cash equivalents and liquid investments, AM Best believes the company has adequate liquidity to meet its claims obligations.

Looking ahead, AM Best expects capital and bonus growth to resume through full accumulation of profits from its profitable non-pandemic insurance business, although it is unlikely to return to pre-COVID levels in the short to medium term. In addition, the company’s ERM rating was revised from fair to marginal to reflect the company’s losses, which were higher than the industry average, which revealed its deficiencies in corporate governance related to product risk and accumulation risk control. The impacts under review with evolving impacts reflect the uncertainty surrounding the final level of damage caused by Taiwan’s COVID-19 development and possible changes in the government’s pandemic policy in the coming months, as well as potential further capital support from Ho Tai Motor if needed depends .

Hotai Insurance reported a significant net loss of TWD 21.8 billion for the first nine months of 2022, compared to a net income of TWD 713 million in the same period of the previous year. Notwithstanding, AM Best regards the pandemic insurance loss as a one-off event and the company is expected to return to profitability and prospectively support the reasonable assessment of operating performance given the improving trend in underwriting and operating performance from 2017 to 2021.

Leveraging its long-standing relationship with Toyota Motor Corporation, Ho Tai Motor is the leading automobile dealership in Taiwan for two decades and holds a reasonable lead over its competitors. Since Hotai Insurance was acquired in 2017 and, in addition to active commercial and residential expansion, has benefited from the parent company’s extensive car dealership network to achieve rapid growth in the automotive business. For the future, AM Best expects this Hotai Insurance will continue to play a strategic role in Ho Tai Motor’s business ecosystem, and the group’s fundamentals will remain strong to provide explicit and implicit support Hotai Insurance, as shown by the capital injections. The lift rating reflects AM Best’s expectation that the parent company will provide timely additional explicit support to bolster the company’s balance sheet strength should ultimate losses from pandemic insurance claims far exceed losses TWD 26.0 billion capital injection.

Ratings will continue to be reviewed, with implications evolving, pending improved visibility of the ultimate pandemic insurance loss level and the magnitude of the capital impact, as well as the level and timeliness of parent financial support. AM Best will continue to have discussions with Hotai Insurance’s management team on claims development and potential further contingency capital plans, if necessary, to assess the impact on the company’s credit profile.

Ratings are communicated to rated companies prior to publication. Unless otherwise stated, the ratings have not changed since this announcement.

This press release relates to ratings published on AM Best’s website. All ratings information relating to the press release and relevant disclosures, including details of the office responsible for issuing each rating referenced in this press release, can be found on AM’s recent ratings activity webpage Best. For more information on the use and limitations of credit ratings, see Best’s Guide to Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Ratings, Best’s Preliminary Credit Ratings and AM Best press releases, see Guide to Proper Use of Best’s Ratings & assessments

AM Best is a global rating agency, news publisher and data analytics provider specializing in the insurance industry. headquarters in The United Statesthe company operates in over 100 countries and has regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. Visit www.ambest.com for more information.

Copyright © 2022 by AM Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

src=”https://cts.businesswire.com/ct/CT?id=bwnewssty=20221202005306r1sid=acqr8distro=nxlang=en” style=”width:0;height:0″ />

View source version on businesswire.com: https://www.businesswire.com/news/home/20221202005306/en/

James Chan
Deputy Director, Analytics

+852 2827 3418

[email protected]

Christie Lee
Executive Director, Analytics

+852 2827 3413

[email protected]

Christopher Sharkey
manager, public relations

+1 908.439.2200, extension 5159

[email protected]

Al Slawin
Senior Specialist in Public Relations

+1 908.439.2200, extension 5098

[email protected]

Source: AM Best