Best Affirms Korean Re ‘A-‘ Rating

November 7, 2003

A.M. Best Co. announced that it has affirmed the financial strength rating of A- (Excellent) of Korean Reinsurance Company (KRIC) with a stable outlook.

“The rating reflects the company’s significant improvement in operating performance, continuous growth in capital and dominant market position in the Korean reinsurance industry,” said Best.

“KRIC has consistently improved its financial position. The Korean solvency ratio, which stood at 190.4% in fiscal year 2002, indicates the company’s adequate solvency position. The company’s adjusted capital has grown by 15% in fiscal year 2002 and 22% in fiscal year 2001,” said the bulletin.

“KRIC has achieved consistent improvement in its operating performances in recent years. With a balanced portfolio composition, the company has been able to generate underwriting profits in the last five years. Contributed by its conservative investment strategy, KRIC has limited exposure to the volatile Korean equity market. In fact, its investment yield has remained relatively stable over the past few years,” it continued.

Best noted that it is in effect the “sole local reinsurer,” and as such has a “dominant presence in the Korean reinsurance market,” despite a relatively “moderate capital base, when compared to international competitors.” Its position, however, continues to give it a competitive edge.

“Offsetting the positive factors are the company’s high underwriting leverage, moderate credit risk associated with the accounts receivable, the increasing competition in the Korean reinsurance market and the low interest environment,” said Best. “An underwriting leverage of 2.97 times is considered to be high for KRIC with a reinsurance portfolio that has a low level of geographical risk diversification, although the catastrophe exposure is limited in Korea.”

The report concluded that with the “increased competition in the Korean insurance market, more direct insurance companies with small capital size may possibly experience financial difficulties, which will translate into credit risks for Korean Re’s insurance receivables. In addition, the low interest environment is expected to insert pressure on KRIC’s investment margin given the portfolio asset mix.”

Best said it would “continue to closely monitor the developments of the company’s top-line growth, especially in the overseas market, to ensure that it will be well supported by the level of capitalization appropriate for an A- rating.”

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