August 15, 2024 Reinsurance

AM Best Assigns Credit Ratings and National Scale Rating to PT KB Insurance Indonesia

Business Wire

HONG KONG--(BUSINESS WIRE)--
AM Best has assigned a Financial Strength Rating of B++ (Good) and a Long-Term Issuer Credit Rating of “bbb+” (Good) to PT KB Insurance Indonesia (KB Indonesia) (Indonesia). The outlook assigned to these Credit Ratings (ratings) is stable. Additionally, AM Best has assigned the Indonesia National Scale Rating (NSR) of aaa.ID (Exceptional) to KB Indonesia with a stable outlook.

The ratings reflect KB Indonesia’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 recognise the wide range of support provided by KB Indonesia’s parent, KB Insurance Co., Ltd. (KBI) which is fully owned by KB Financial Group Inc. (KB Group).

As a joint venture between KBI (70%) and AM Sinar Mas Multifinance (30%), KB Indonesia is a small-sized non-life insurer domiciled in Indonesia. The company mainly focuses on offering coverage to Korean companies in Indonesia while having limited market presence in the local non-life segment. Following active entries of KB Group affiliates into Indonesia as part of the group’s global expansion strategy, KB Indonesia’s source of business is becoming diversified with a rising trend in cross-selling business with its affiliates. In terms of product portfolio, a level of concentration on property and engineering lines was observed. Nonetheless, AM Best expects KB Insurance to have a more diversified portfolio going forward with an increasing volume of motor business sourced through its affiliated companies.

KB Indonesia’s risk-adjusted capitalisation is assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), supported by low underwriting leverage and a conservative investment portfolio. While KB Indonesia is viewed to have a modest absolute capital base, AM Best expects the company to demonstrate solid capital growth through full profit retention over the coming years to meet the strengthened capital requirements by the local regulator. Offsetting factors in the balance sheet assessment include considerable counterparty credit risk due to sizeable reinsurance exposure to local (re)insurers with relatively weaker credit quality in compliance with regulatory requirements.

AM Best assesses KB Indonesia’s operating performance as adequate, with a five-year (2019-2023) return-on-equity ratio of 5.1% and a combined ratio of 96.8%, as calculated by AM Best. Historically, the company’s underwriting performance has demonstrated moderate volatility due to its small net premium base and exposure to low frequency, high severity losses. Prospectively, AM Best expects improved stability with growing premium volume and increase in motor line of business. KB Indonesia’s conservative investment portfolio, which is mainly composed of time deposits and Indonesian government bonds, provides stable investment profits that partially mitigate volatility in underwriting profits.

KB Indonesia receives rating enhancement from implicit and explicit support from its parent, KBI. The company plays an important role in KB Group’s overall expansion strategy in Indonesia’s insurance market and benefits from the group’s network and distribution channels in Indonesia. AM Best expects the parent will provide capital support to KB Indonesia in times of needs, as evidenced by KBI’s public announcement to fully support the company in fulfilling the strengthened local capital requirement that will be applied over the coming years.

Positive rating actions could arise if KB Indonesia’s operating performance continues to improve and reaches a level that positively distinguishes the company from its industry peers in a sustainable manner. Negative rating actions could occur for KB Indonesia if support from KBI is reduced to an extent that no longer supports the current level of rating enhancement. Negative rating actions also could arise if KB Indonesia’s risk-adjusted capitalisation significantly deteriorates such as from heightened credit risk following major loss events or from excessive business expansion that materially outpaces the capital growth. Positive rating actions could arise if there is a sustained improvement in the company’s operating performance.

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. For more information, visit www.ambest.com.