A.M. Best Assigns Initial Rating to Oriental Fire and Marine

June 25, 2003

A.M. Best Co. has assigned an initial financial strength rating of B++ (Very Good) to Oriental Fire and Marine Insurance Company Ltd (OFMI), South Korea. The outlook is stable.

The rating reflects OFMI’s strong market position in the commercial lines sector, consistent operating results and improved capitalization. The rating also reflects the company’s short-tail risk exposure.

As at Sept. 2002, OFMI is the fifth-largest general insurer in Korea. It has established a solid presence in the commercial lines sector due in part to its affiliation with the Hanjin Group, which includes Korean Air, Hanjin Shipping and Hanjin Heavy Industries.

The combined ratio improved to 102 percent as of December 2002 from 111 percent in fiscal year 1999. The commercial lines business remains the most profitable, with a loss ratio of 46.5 percent as of December 2002. Over the same period, the motor business also posted encouraging results, with a loss ratio of 67.7 percent. Additionally, OFMI has strived to restructure the reserves for its long-term products to partially offset the impact of depressed investment earnings.

Even in a competitive environment, the company has maintained a growth momentum in line with its peers. The short-tail nature of OFMI’s insurance portfolio has also contributed to its prospective balance sheet strength. OFMI’s statutory solvency ratio – as measured by Korean insurance regulations – is 183.4 percent as at March 2003.

Offsetting factors include high underwriting leverage and the emergence of alternative distribution channels.

OFMI posted a net premium leverage ratio (including savings premiums) of 5.09 times in fiscal year 2001. While this represents a significant improvement over the previous year, the company is more leveraged than its higher rated competitors.

In order to drive future earnings and surplus growth, OFMI has to cope with competitive factors such as the increasing popularity of direct marketing and the introduction of bancassurance. As a result, the company is making progress in expanding its distribution capabilities by forming alliances with local and foreign banks.

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