Best Affirms Rating of South Korean Insurers Dongbu and LG Insurance

October 21, 2003

A.M. Best Co. announced that it has affirmed the ‘A-‘ (Excellent) financial strength ratings of two South Korean insurers – Dongbu Insurance Company Ltd. and LG Insurance Company Ltd. The outlook for both companies is stable.

Dongbu Insurance Company:
Best said its “rating reflects the company’s consistent operating performance, solid market position and gradual improvement in risk-based capitalization.” It also noted the company’s “consistent improvement in its underwriting performance, ” with “underwriting results increased to KRW 24 billion (USD 19 million) in fiscal year 2002 from KRW -156 billion (USD -141 million) in fiscal year 1999.

“Dongbu Insurance has consistently achieved one of the lowest expense ratios in the Korean non-life industry. Driven by its prudent investment strategy over the past five years, the company has steadily generated net income with limited volatility,” said Best.

“Despite the intense competition in the motor market, Dongbu Insurance has been able to maintain its overall market share by strengthening its position in the commercial lines sector.

“Dongbu Insurance has maintained a solid financial position, as measured by the Best’s Capital Adequacy Ratio (BCAR). The Korean solvency ratio, which currently stands at 179%, also reflects the company’s adequate solvency position. Consistent financial performance coupled with a slow down of business growth will further reinforce risk based capital and surplus,” the bulletin concluded.

LG Insurance Company:
“The rating reflects LG Insurance’s strong capitalization, excellent market profile and the short-tailed nature of the business in the Korean market,” said Best.

It characterized LG as “one of the most strongly capitalized companies in the Korea non-life market, with the local solvency margin standing at 183% at the end of fiscal year 2002.” Best noted that “although this was a slight decrease from 203% at the previous fiscal year-end, the ratio has recovered further to 205% during the first three months of fiscal year 2003. The Best’s Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis, demonstrates a similar trend.”

LG is one of Korea’s largest P/C insurers. Best said “the company’s gross premiums written growth rate surpassed the industry average for the past four years. This trend is expected to continue in the foreseeable future as its smaller competitors face increased competition due to liberalization and the changing market environment.”

The rating agency indicated that “partially offsetting these positive factors are the intensified competition in the market from direct channels and bancassurance; a difficult investment environment; and the company’s potential risk exposure from strategic investments. The market penetration of less established companies through direct channels continues. While most of LG Insurance’s business is distributed through solicitors and agents, the company may also enter into direct markets.”

It also noted that “the interest rates in the Korean market will remain low in the foreseeable future, as personal consumption and capital investment remain sluggish. The economic recovery is also limited to the export growth. LG Insurance will continue to face challenges in this operating environment.”

It specifically indicated that “LG Insurance has potential exposure to strategic investments such as Hanaro Telecom and Lucky Life. Moreover, the weak performance of its life subsidiary, Lucky Life, will continue to drag on the capital and surplus growth.”

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