Best Affirms Oriental Fire & Marine ‘B++’ Rating

November 16, 2004

A.M. Best Co. announced that it has affirmed the financial strength rating of “B++” (Very Good) of South Korea’s Oriental Fire & Marine Insurance Company Ltd. with a stable outlook.

“The rating reflects Oriental’s consistent and stable operating performance, high-quality and liquid investment portfolio and strong market position, especially in commercial lines,” said Best. “Oriental’s risk adjusted capitalization has been maintained in fiscal year 2003 after a strong improvement in fiscal year 2002, as measured by the Best’s Capital Adequacy Ratio (BCAR). The Korean solvency ratio improved to 186 percent in fiscal year 2003 from 163 percent in fiscal year 2001.

“As the company targets double-digit growth to increase the current premium market share of 10 percent, the improvement in risk-based capitalization may slow down.During the last five years, Oriental has shown stable operating performance with an operating ratio of 97 percent as of fiscal year 2003, which is in line with other major non-life companies. Due to the lower proportion of fixed interest rate reserve in its long-term savings liability, the company is less exposed to interest risk compared to its larger competitors.”

Best noted that “although bipolarization has been the recent trend in the Korean non-life market, the company, which is the fifth-largest player in the Korean non-life sector, has grown faster than the market, maintaining its position at the higher end.” Best said it expects Oriental to maintain its current stable profitability and market presence.

“Offsetting factors include the company’s high underwriting leverage, low persistency in long-term business and the rapidly changing non-life insurance market in Korea,” the report continued. “Market penetration of companies selling products through direct distribution channels has increased in recent years. Oriental is facing new challenges such as bancassurance and competition from other financial institutions. The ability of the company to cooperate with other financial institutions will become increasingly important.”

The rating agency said that in its opinion “Oriental’s long corporate history with its flexible corporate strategy has prepared the company reasonably well for such foreseeable industry developments.”

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