State-run Mega Financial Holding Co (兆豐金控) is reportedly planning a second capital increase for its non-life insurance arm, Chung Kuo Insurance Co (兆豐產險), as losses from claims linked to COVID-19 insurance policies widen sharply.
The bank-focused conglomerate earlier announced it would participate in Chung Kuo’s capital increase of NT$2 billion (US$62.8 million) later this year to boost its capitalization.
Chung Kuo incurred a net loss of NT$3 billion in the first half of this year, with the losses likely to widen for the full year given still-sizeable outstanding pandemic policies.
Photo courtesy of Mega Financial Holding Co
The insurer last month set aside another provision of NT$2.7 billion to absorb losses from COVID-19-related claims, which have resurged after subsiding in previous months.
The extra provision is based on the assumption that 35 percent of the nation’s population would at some point contract COVID-19, unnamed sources said.
As of Tuesday, local COVID-19 cases had reached more than 6.9 million cases, or about 30 percent of the population.
Health experts now expect positive cases to reach 40 percent or even 50 percent, far above the 20 percent level on which Chung Kuo’s first capital increase was based, the sources said.
The first capital increase was intended to boost the non-life insurer’s risk-based capital to 300 percent, but the target appears untenable with COVID-19 infections spiking and a second capital increase inevitable, the sources said.
COVID-19 claim losses amounted to NT$6.6 billion as of Sept. 30 and could approach NT$10 billion, if positive cases continue climbing toward the end of the year, they said.
Mega Financial used its own money to fund the first capital increase, but would have to borrow through debt issuance or other means for the second fundraising, the sources said.
Taiwan Ratings Corp (中華信評) on Tuesday removed Chung Kuo’s ratings from the “CreditWatch” state with negative implications, as it believed the insurer’s capitalization would remain excellent for the next two to three years with the anticipated capital injection and strong support from its parent.
“These factors will help to absorb substantial claim losses on its COVID-19 pandemic insurance policies sold in the first half of 2022,” Taiwan Ratings said in a statement, affirming its “twAA” long-term financial strength rating and issuer credit rating for Chung Kuo.
Taiwan Ratings, a local arm of S&P Global Ratings, placed the company on the “CreditWatch” category on June 8.
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