AM Best Affirms Credit Ratings of Korea P&I Club

AUGUST 23, 2024 08:17 AM (EDT)

AM Best Affirms Credit Ratings of Korea P&I Club

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FOR IMMEDIATE RELEASE

HONG KONG - AUGUST 23, 2024 08:17 AM (EDT)
AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of "bbb+" (Good) of Korea P&I Club (KP&I or the Club) (South Korea). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect KP&I's balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect the wide range of support that the Club receives from the South Korean government.

KP&I's risk adjusted capitalisation is assessed at the strongest level, as measured by Best's Capital Adequacy ratio (BCAR) and is expected to remain at that level over the intermediate term. The Club's balance sheet strength is underpinned by its low underwriting leverage and a highly conservative investment portfolio, which is partially offset by its small capital base that can be susceptible to potential volatility from large claim losses and limited financial flexibility.

To improve its underwriting fundamentals and reduce the degree of volatility, KP&I continues to implement various initiatives. These include, but are not limited to, general premium increases, strengthening underwriting and reduction of large-size vessels, which helped the Club achieve a slight improvement in underwriting performance in 2023. Despite a few exceptionally large losses in the first half of 2024, which are expected to restrain the Club's underwriting profitability for the year, AM Best notes that the Club's overall risk exposures to potential high-severity losses has reduced materially since 2023, following the underwriting restructuring.

KP&I has a relatively small presence in the global P&I market in comparison with the members of the International Group of P&I Clubs, as KP&I's business is concentrated mainly in South Korea with a focus on small-to-medium sized vessels. Nonetheless, the Club leverages its local expertise and strong network with South Korean shipping companies to maintain a stable presence in the domestic market.

Underpinned by its strategic role to support the long-term development of maritime infrastructure in South Korea, the Club receives a wide range of support from the government, including subsidies, corporate tax exemption, no dividend payout policy to its members, as well as domestic/overseas marketing and diplomatic efforts.

Negative rating actions may arise if the operating profitability of KP&I materially deviates from its business plan, despite various underwriting measures, to a level that no longer is suitable for the adequate assessment category. Negative rating actions may also arise if support from the South Korean government is reduced to an extent that it no longer supports the current level of enhancement.

Positive rating actions could occur if the company's balance sheet strength fundamentals demonstrate sustained improvement.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to Credit Ratings that have been published on AM Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best's Credit Ratings, Best's Performance Assessments, Best's Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best's Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.