AM Best Upgrades Issuer Credit Rating of Korean Reinsurance Company

DECEMBER 12, 2024 08:38 AM (EST)

AM Best Upgrades Issuer Credit Rating of Korean Reinsurance Company

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FOR IMMEDIATE RELEASE

HONG KONG - DECEMBER 12, 2024 08:38 AM (EST)
AM Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to "a+" (Excellent) from "a" (Excellent) and affirmed the Financial Strength Rating (FSR) of A (Excellent) of Korean Reinsurance Company (KRE) (South Korea). In addition, AM Best has revised the outlook of the Long-Term ICR to stable from positive while the outlook of the FSR is stable.

The Credit Ratings (ratings) reflect KRE's balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management.

The upgrade of the Long-Term ICR reflects KRE's improved balance sheet strength, underpinned by its risk-adjusted capitalisation that showed a noticeable rise in 2023, and is expected to remain at a similar level over the medium term, as measured by Best's Capital Adequacy Ratio (BCAR). The improvement was driven by increased available capital from hybrid bond issuance in 2023, continued solid profit retention, as well as reduced underwriting risk following the restructuring of the company's business portfolio. The ongoing efforts to offload unprofitable business is expected to contain the increase in underwriting risk in the foreseeable future and benefit KRE with organic growth in retained earnings over the long term. At the same time, the company has demonstrated a well-matched asset and liability management, which indicates its capability to maintain a stable solvency ratio and withstand interest rate fluctuations. Other supportive balance sheet strength considerations are good accessibility to capital markets and a conservative investment strategy.

AM Best assesses KRE's operating performance as adequate, with a return-on-equity of 9.5% and a non-life combined ratio of 95.5% (net/net, IFRS 17), as calculated by AM Best. The company's domestic personal business reported a material reduction in insurance service revenue in 2023, mainly due to its concerted effort to discontinue underperforming treaties. AM Best expects that KRE's domestic profit fundamentals will improve following the portfolio modification and profit-oriented underwriting. Meanwhile, KRE's overseas performance has deteriorated mainly due to a number of high-severity natural catastrophe losses. The company is reducing its exposure to catastrophe property risks overseas, while striving to expand non-catastrophe business segments, such as casualty and specialty lines. KRE's robust investment income is expected to be supported by the steady expansion of its asset base from coinsurance business and favourable returns on foreign bonds and alternative investment.

As the dominant and only local reinsurer in South Korea, KRE was ranked as the sixth-largest IFRS 17 reporting reinsurer in the global reinsurance market in terms of gross insurance service revenue (ISR) in 2023, supported by a strong domestic market base and growing overseas business. Despite increased competition and efforts to restructure its portfolio in the domestic market, AM Best believes that KRE's dominant market position will remain unchallenged over the medium term. KRE is at the forefront of the growing coinsurance market in South Korea, which AM Best expects will be an additional source of earnings for the company in the long term. KRE's overseas business continues to expand gradually, constituting more than a third of its gross insurance service revenue in 2023, supporting its diversification.

Negative rating actions could occur if there is a sustained deteriorating trend in KRE's operating performance. Negative rating actions also could occur if there is a material decline in the company's risk-adjusted capitalisation, triggered by incidents such as multiple medium- or large-scale catastrophe losses retained in a fiscal year. Positive rating actions could occur if KRE's operating performance demonstrates strong and consistent results to positively distinguish itself from industry peers.

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.