A.M. Best Affirms Ratings of Korean Reinsurance Company
By Carole Lovell | |
A.M. Best Company, Inc. |
The ratings reflect Korean Re’s financial flexibility, stable operating results in its domestic business and its conservative investment portfolio.
Korean Re’s risk-adjusted capitalization is expected to remain at an adequate level to support its current ratings, although the company reported a large loss from the Thai floods in fiscal year 2011.
Korean Re has maintained stable underwriting results in its domestic businesses of commercial and personal lines over the past five years. The commercial lines business has remained profitable over the past five years with an average combined ratio of 90%. Personal lines recorded a five-year average combined ratio of 102%, but the underwriting result is expected to stabilize going forward, owing to the sliding commission scale and the loss carry forward provision.
The fixed income asset comprised 85% of the company’s investments in fiscal year 2010. In particular, the bond portfolio accounted for 62% of the total investment assets. Korean Re increased its investment in equities by 2.7 percentage points to 7% in fiscal year 2010 in response to the low interest rate environment. These increases in investments are within the company’s risk management guidelines.
Partially offsetting these positive rating factors are the deterioration in Korean Re’s operating results due to the Thai floods and the increased net catastrophe risk exposure in the company’s overseas portfolio in recent years.
Negative rating actions could occur if the operating performance of Korean Re deteriorates in the coming years, or if risk-adjusted capitalization declines to a level that is below A.M. Best’s expectations.
Upward movement on the ratings is unlikely at this point.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding Universal BCAR”; “Catastrophe Analysis in A.M. Best Ratings”; “Assessing Country Risk”; and “Risk Management and the Rating Process for Insurance Companies.” Best’s Credit Rating Methodology can be found at http://www.ambest.com/ratings/methodology.
Copyright: | (c) 2012 A.M. Best Company, Inc. |
Wordcount: | 378 |
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