AM Best Affirms Credit Ratings of Meritz Fire & Marine Insurance Co., Ltd.

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 Meritz Fire & Marine Insurance Co., Ltd. (Meritz) (South Korea). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Meritz’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

Meritz’s balance sheet strength is well-supported by its risk-adjusted capitalisation, which is assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Meritz has good financial flexibility, as evidenced by successful issuances of hybrid/subordinated bonds and several rounds of capital injections from its parent, Meritz Financial Group Inc. (MFG), in the past, while its financial leverage remains at a modest level. Dividend payout ratios are likely to remain high compared to previous levels before the restructuring of the group; however, AM Best expects that Meritz’s strong earnings stream will continue to support its risk-adjusted capitalisation over the medium term. The company is viewed to have appropriate risk management practices for its sizeable exposure to real estate-related loans. However, AM Best will monitor any material increase in asset risk, particularly given the recent uncertainties in the domestic and global real estate markets.

Meritz’s operating performance is underpinned by a consistently strong investment performance and a relatively low loss ratio compared with its domestic peers. Its long-term insurance line recorded the lowest combined ratio (net/net) among its peers in 2023, as calculated by AM Best. The company focuses on achieving stable profits for the general and auto lines through active portfolio management. Meritz’s strong investment performance benefits from competitive returns in real estate-related loans, especially with increased investment profits from its enlarged asset base.

Meritz is the fifth-largest non-life insurer in South Korea in terms of gross insurance service revenue in 2023, with a gradually increasing market share over the last years, driven by strong growth in its long-term health insurance business generated through the general agency channel. The company strategically focuses on long-term insurance, which represented about 81% of its gross insurance service revenue in 2023. AM Best expects that the current business mix will remain largely unchanged over the medium term. While the general agency channel remains as a major distribution channel, Meritz aims to gradually expand its tied agent channel in the future.

Negative rating actions could occur if Meritz shows a sustained deterioration in its operating performance to a level that no longer supports the current assessment. A material deterioration in the credit profile of MFG, also may have a negative impact on the company’s ratings. Positive rating action could occur if Meritz demonstrates sustained improvement in its balance sheet fundamentals.

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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AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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