HONG KONG--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) 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 assesses as very strong, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management.
KRE’s risk-adjusted capitalisation is assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Although it posted nil growth in its capital and surplus (C&S) in 2020 mainly due to share buybacks executed as part of shareholder return, C&S demonstrated a stable increase over the first nine months of 2021, backed by solid earnings. Positive balance sheet considerations also include its conservative investment strategy and good financial flexibility, which was proven by its track record of successfully raising supplementary capital raising through the issuance of hybrid securities in past years.
KRE’s underwriting performance remained relatively stable although its margin was thin, mainly due to a large proportion of domestic personal line business with loss sensitive commission structures. Meanwhile, robust investment income, which is generated mainly from fixed income securities, provides sufficient buffer to the overall bottom line supported by its expanding asset base.
In KRE’s domestic market, the combined ratio for the commercial line showed a material improvement during the first nine months of 2021, following rate adjustments after large losses in the prior year, tightened underwriting and a generally hardening market. In personal lines, KRE has been trying to mitigate worsened profitability in recent years (which was driven mainly by deteriorated loss ratios in the primary medical market) through changes in its treaty commission scheme and co-developing profitable products with its clients. Nonetheless, the company aims to reduce the share gradually of the domestic personal line going forward to improve its overall underwriting profitability. KRE reported largely stable underwriting results from its overseas business in 2020 and the first nine months of 2021, despite losses from the COVID-19 pandemic.
KRE ranked 10th in the global reinsurance market in terms of gross premium written (GPW) in 2020, supported by its dominant position in South Korea’s reinsurance market, as well as its growing overseas business. While a majority of its business is generated in its domestic market, AM Best views that natural catastrophe concentration risk from its home market after retrocession protection is low relative to its C&S, as South Korea is not a catastrophe-prone country. However, AM Best will monitor the increase in natural catastrophe risks from overseas markets following the company’s global expansion footprint. That said, KRE’s share of overseas business reached approximately 27% of its consolidated GPW in 2020 through the company’s continued efforts for global expansion especially to Europe and North/Latin America over the past years.
Negative rating actions could occur if there is a material decline in KRE’s risk-adjusted capitalisation, triggered by incidents such as multiple medium or large catastrophe losses retained in a fiscal year. Negative rating actions also could occur if there is a sustained deteriorating trend in the company’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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