Moody’s changes Fubon P&C's outlook to negative
Credit ratings agency Moody's Investors Service has changed its outlook for Fubon Property & Casualty Insurance (Fubon P&C) to negative from stable.
The change in outlook reflects Moody's expectation that it would be challenging for Fubon P&C to make a net profit in the next 12-18 months while maintaining its market position.
Fubon P&C's underwriting profitability remains weak and deteriorated in H1 2019, with net losses widening to Rmb28 million ($3.98 million) from Rmb3 million in H1 2018.
This reversed the trend in 2016 to 2018 where net losses were narrowing. Higher claims in motor and commercial property lines drove up the combined ratio materially to 113.3 percent in H1 2019 from 103.4 percent in H1 2018.
In addition, Moody’s said the insurer's overall profitability is affected by the recognition of losses from its affiliate investment in Teng Fu Bo, which operates the insurance distribution platform WeSure. Teng Fu Bo has yet to achieve a profit because of the upfront costs to build technology and distribution capabilities.
Fubon P&C engaged in efforts to lower its combined ratio, including expanding its profitable non-motor lines and assumed business, and ceasing writing unprofitable businesses.
The exit of unprofitable businesses has led to a gradual drop in Fubon P&C's market share and ranking.
“The persistent delay in achieving a profit and its weakening market position are pressuring the insurer's credit profile,” said Moody’s. “Considering declining motor premium rates and Fubon P&C's limited operating scale, it will remain challenging for Fubon P&C to meaningfully reduce its combined ratio in the next 12-18 months.”
At the same time as changing the outlook on Fubon P&C, Moody’s also affirmed Fubon P&C's A3 insurance financial strength rating (IFSR). Moody’s said this reflects the strong financial and operational support that Fubon P&C receives from its two major shareholders, Fubon Insurance Co (IFSR A1 stable) and Fubon Life Insurance Co (IFSR A3 stable).
“Fubon P&C also has a highly liquid investment portfolio and short-tail-focused product mix, which entails low reserving risk,” said Moody’s “These strengths are mainly offset by Fubon P&C's weak profitability, as reflected by its persistent net losses since its establishment in 2010. In addition, the insurer's limited operating scale results in a high expense ratio when compared with its peers.”
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