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 LIG Insurance (China) Co Ltd (LIG China) (China). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect LIG China’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. The ratings also reflect the wide range of support that the company receives from its parent, KB Insurance Co., Ltd., in areas including business development, reinsurance and investment.
LIG China’s balance sheet strength is supported by its risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Due to its small capital base and the underwriting of large commercial accounts, the company’s risk-adjusted capitalization is exposed to volatility in the event of large losses. This is mitigated partially by the company’s comprehensive reinsurance program placed with high-quality counterparties. The company has not paid dividends for the past few years and plans to retain its profits fully to support growth over the short to medium term.
The company has generated positive net profits consistently over the past five years. Stable interest income derived from a highly conservative investment portfolio continued to be the main driver of its operating performance, which helped to offset the marginal underwriting results. Despite the low acquisition costs contributed by its direct distribution channel and reinsurance commission income, LIG China’s overall technical results have remained volatile because of its fluctuating loss ratio and high management expense ratio due to its small net earned premium base.
As a foreign-owned insurer focusing on servicing Korean Interests Abroad business, LIG China has a defensible competitive advantage in this niche market, despite accounting for a small market share of the overall domestic non-life market. With the benefit of its large clients’ increased investments in China, the company expects to grow its premiums at a modest rate over the next three years based on its business plan. Nonetheless, uncertainties from political relations between China and Korea may subject the company to regulatory risk exposure.
While positive rating actions are unlikely over the near term, negative rating actions could occur if there is a material decline in the company’s risk-adjusted capitalization, a significant deterioration in its operating performance or reduced support from its parent.
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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