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 assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM). 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.
AM Best assesses LIG China’s balance sheet strength at the very strong level, supported by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company continues to maintain a very low underwriting leverage, and a conservative investment portfolio comprising cash and bank deposits. Due to its small capital base and the underwriting of large commercial accounts, LIG China’s risk-adjusted capitalisation is exposed to volatility in the event of large losses. This is mitigated partially by its comprehensive reinsurance programme placed with highly rated reinsurers. The company has not paid dividends for the past five years and plans to continue retaining its profits fully to support growth over the short to medium term.
LIG China has generated net profits consistently over the past five years, derived mainly from stable investment income generated by its conservative investment portfolio. The company’s underwriting performance has been marginal, with a volatile loss ratio due to its small net earned premium base albeit partly offset by a low operating expense ratio thanks to its favourable reinsurance commission income. LIG China reported a high loss ratio during 2020 as a combined result of reserve strengthening in the construction line of business, as well as unfavourable claims experience in the liability line of business. Nonetheless, its bottom line remained profitable in 2020 despite the underwriting loss. Going forward, the company projects net profits for the next three years, and AM Best expects its investment performance to continue to be the major driver of the company’s overall earnings, although its underwriting results can be volatile across years.
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 share of the overall domestic non-life market. The company intends to maintain a stable underwriting book over the short term consisting of commercial property, construction and engineering, cargo, liability and accident, and health lines of business. AM Best views its ERM as appropriate for its risk profile, although uncertainties from political relations between China and South 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 capitalisation, or a significant deterioration in its operating performance or a reduced level of support from its parent group.
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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