Best Affirms Korean Re ‘A-‘ Rating

November 23, 2004

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

“The rating reflects the company’s continuous growth in absolute capitalization since fiscal year 1997, its excellent operating performance and dominant market position in the Korean reinsurance industry,” Best said.

“Korean Re’s financial position has shown strong improvement in recent years,” the announcement continued. “The compounded annual growth rate of adjusted capital averaged 17 percent during the last five years. The Korean local solvency ratio as of fiscal year 2003 was 200 percent, compared to 190 percent in fiscal year 2002. Under the Best’s Capital Adequacy Ratio (BCAR), Korean Re was able to improve the ratio every year since fiscal year 1999. Providing further comfort is the extensive retrocession program and the lack of catastrophic exposure in Korea, which offer a substantial cushion for the company’s capital base.”

Best also noted that the company’s improvement in operating performance has been excellent throughout the years. “The combined ratio has been lower than 100 percent over the last five years. With a balanced portfolio composition, Korean Re was able to generate underwriting profits (before catastrophe reserve contribution) in the last five years. The income from all eight major business lines (which includes the investment income from the premium generated from each business line) was positive in fiscal year 2003. The company maintains a conservative investment strategy, which is reflected by its ability to generate consistent investment income.”

Korean Re is the sole local reinsurer, and from that position it “enjoys a dominant presence in the Korean reinsurance market,” Best continued. “Although the company’s capital base is smaller than that of its international competitors, its expertise in the Korean reinsurance market since 1963, long business relationship with local insurers, its ability to quickly meet the market demand on new products and its well-established distribution network have enabled it to maintain its competitive edge.”

Offsetting factors, cited by Best, include “the company’s high underwriting leverage, moderate credit risk associated with the accounts receivable and the increasing competition in the Korean reinsurance market. Although a large part of Korean Re’s portfolio is in personal lines with no significant risk exposure and limited catastrophe exposure, the current leverage of 2.73 times as of fiscal year 2003 is considered high.”

Best added that it would continue to separately monitor “the leverage ratios for the company’s domestic business and overseas business.” Best also noted that with the “increased competition in the Korean insurance market, more direct insurance companies of smaller sizes will fall into financial difficulties, which will translate into credit risks for Korean Re’s insurance receivables. As the surviving non-life companies become financially stronger, they will be able to retain more business. The reinsurance market in Korea, especially the commercial lines, is also facing a competitive environment.”

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