Best Affirms Hyundai’s ‘A-‘ Ratings

November 8, 2006

A.M. Best Co. has affirmed the financial strength rating (FSR) of “A-” (Excellent) and the issuer credit rating (ICR) of “a-” of South Korea’s Hyundai Marine & Fire Insurance Company Ltd. with a stable outlook.

“The ratings reflect the company’s stable capitalization, consistent investment performance and favorable reserve buffer compared to its main competitors,” said Best. “Over the past five years, Hyundai’s capitalization has remained stable. In fiscal year 2005, the company’s capitalization remained flat compared to the prior year. The company’s risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR), has slightly declined. The local solvency ratio experienced an 8 percent decline to 167 percent in fiscal year 2005. However, with the company’s conservative investment policy, the volatility of its earnings income is rather limited. The company’s management indicated to A.M. Best that capitalization will gradually improve, backed by stable net income.

“The company maintains a consistent investment performance with limited volatility over the past five years. It has a relatively smaller investment in equities compared to its peers. The company has increased investment in fixed income assets and decreased equity securities to minimize the impact of stock market fluctuations.

“Hyundai has a competitive advantage in the motor business due to its close relationship with Hyundai-Kia Motors in the Korean motor market. The company maintains the lowest loss ratio in the motor business with a favorable reserving level in the industry. This reserve buffer enables the company to stabilize the loss ratio and maintain a competitive edge in the auto business line.”

Best noted, however that “partially offsetting these positive rating factors are the fierce competition in the direct market, uncertainties in market deregulation and Hyundai’s comparatively weaker capitalization relative to its main competitors.

“The direct channels have expanded very rapidly over the past few years. Excessive price competition in the direct market has worsened the industry’s overall loss ratio.” Best said it “believes that the market competition in auto direct sales will remain intense and insurers need to be cautious when entering the market in order to maintain profitability.

“Increasing deregulation in the industry will pose challenges for the non-life insurers in the market. Insurers need to be proactive in formulating strategies in response to deregulation in order to compete effectively in the market.

“Although Hyundai has maintained stable capitalization over the past five years, its capitalization is relatively weak amongst its main competitors. The company needs to improve profitability and increase capital to support its ongoing business growth.”

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