HONG KONG--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of Korean Reinsurance Company (KRE) (South Korea). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect KRE’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management.
KRE’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed as strongest, which AM Best expects to remain stable over the medium term. As a listed company on the Korea Exchange, the company demonstrates a high level of financial flexibility, which is proven by a track record of successful capital raising through the issuance of hybrid bonds in overseas and domestic capital markets. Its conservative approach to asset allocation remains supportive of the company’s current balance sheet strength assessment, although loans and alternative investment holdings have increased.
KRE’s operating performance is assessed as adequate, underpinned by a five-year average combined ratio of 98.9% and return-on-equity ratio of 6.8%. It holds a large book of personal line proportional treaties, which accounted for more than half of net premium written in 2018; this has helped KRE maintain a relatively stable underwriting performance despite a thin profit margin. Sliding scale commission schemes and loss participation terms in personal line treaties also have provided additional stability to its underwriting profitability. Although its overseas business was impacted negatively by higher-than-expected catastrophe losses in Asia in recent years, the company was able to limit its net losses successfully through effective retrocession programs.
In addition, KRE’s robust investment income, a majority of which is generated from fixed-income securities, provides sufficient buffer to overall bottom line results.
KRE maintains a dominant position in South Korea’s reinsurance market, with approximately a 60% market share in terms of gross premiums written (GPW) in 2018. With more than 60 years of directly working with primary insurers in South Korea, the company benefits from its strong relationship with domestic clients and profound market knowledge, as well as an immense amount of data it accumulated for better pricing and risk management. Although regional diversification is limited compared with other major global reinsurers, overseas business increased gradually over the past five years accounting for 25% of total GPW in 2018. While Asia remains the primary region for KRE’s overseas expansion, the company’s combined share of business from Europe and the Americas has grown, and made up approximately 40% of its total overseas business in 2018.
Positive ratings action could occur if there is material improvement in KRE’s risk-adjusted capitalization or sustained improvement in operating performance.
Negative rating actions could occur if there is a material decrease in capitalization triggered by large-scale catastrophe losses, or if there is significant deterioration in KRE’s operating performance.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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