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). The company’s capital showed solid growth in 2022, despite some unrealised losses from its available-for-sale bond holdings, supported by recent issuances of hybrid bonds to prepare for new accounting and solvency regimes (IFRS 17 and K-ICS), as well as to support its growing business. AM Best notes that the impact of recent rising interest rates on the company’s capital was not material due to relatively short durations of its bond assets and a large share of held-to-maturity securities. KRE’s balance sheet strength is also supported by good accessibility to capital market and a conservative investment strategy.
KRE’s underwriting performance remained relatively stable despite a thin margin, mainly due to a large proportion of domestic personal lines business with loss-sensitive commission structures. While the performance of its domestic commercial line business remained favourable in 2021/2022 due to a hardening of the market and the company’s tightened underwriting, its overseas performance deteriorated in recent periods driven by an increase in COVID-19 claims and natural catastrophes. AM Best expects the company’s pandemic-related losses to gradually abate, as already seen in its claims experience in the second half of 2022. KRE plans to reduce its exposure to property catastrophe risks overseas, while trying to expand non-catastrophe business lines such as casualty and specialty lines. Meanwhile, robust investment income, which is generated mainly from fixed-income securities, provides a sufficient buffer to the overall bottom line supported by its expanding asset base.
The company ranked the 13th in the global reinsurance market in terms of gross written premium (GWP) in 2021, supported by its dominant position in South Korea’s reinsurance market and its growing overseas business. Despite the recent decline in domestic market share following its portfolio restructuring to improve profitability, AM Best believes that KRE’s market leadership will remain unchallenged over the medium term. The company’s overseas business increased gradually and accounted for more than a quarter of its consolidated GWP in recent years, mainly through the company’s continued efforts in global expansion, especially to Europe, and North and Latin America in recent 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-scale catastrophe losses retained in a fiscal year. Negative rating actions could also 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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