A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Hyundai Marine & Fire Insurance Co., Ltd. (HMFI) (South Korea). The outlook for both ratings is stable.
The ratings reflect the company’s improved capitalization, profitability and consistent investment performance.
HMFI achieved a net income of KRW 171 billion (USD 169 million) in fiscal year 2007, which is an increase of 300% compared to the previous year. This was due to a lower loss ratio in the motor insurance portfolio and lack of catastrophic events in fiscal year 2007. The decline in the funding cost for the maturity refund savings reserve was also a contributing factor to the improvement in net income. On the revenue side, net premiums written showed strong growth, with an increase of 21% compared to the prior year.
The overall combined ratio in fiscal year 2007 was 101% compared to 105% in fiscal year 2006. The combined ratio calculation in Korea includes the maturity refund savings premium, which tends to increase the recorded combined ratio.
In the motor insurance portfolio, the premium rate increased by approximately 5% at the beginning of fiscal year 2007. Thanks to the increased premium rate and low frequency and less severity of motor accidents, the performance of this portfolio improved in fiscal year 2007; this trend is likely to be maintained throughout fiscal year 2008.
The profitability in the long-term insurance portfolio improved as the assumed interest rate for the savings reserve declined, with the high fixed-rate guaranteed products maturing. About 36% of the policies with high fixed-rate guarantees (interest rate higher than 8%) matured in fiscal year 2007. A weighted average of the assumed interest rate of the long-term portfolio was around 5% in fiscal year 2007.
Based on a conservative investment strategy, HMFI recorded stable investment yields of 5.4% in fiscal year 2007. Almost 80% of the invested assets are in fixed income investments including loans, cash and deposits. Around 9% of the invested assets are in equities, and the remaining portion is in real estate.
HMFI improved its Best’s Capital Adequacy Ratio (BCAR) in fiscal year 2007. The company also strengthened its adjusted capital and surplus to KRW 933 billion in fiscal year 2007 from KRW 711 billion in fiscal year 2006. According to HMFI’s three-year business plan, its capitalization will continue to improve.
Partially offsetting these positive rating factors are the higher volatility in the investment market, the fierce competition and uncertainties in market deregulation relating to cross-selling.
The recent global market turmoil has affected Korea and is expected to create high volatility in the investment market. This volatility may cause financial losses, which will reduce the capital level of the company. A.M. Best is of the opinion that maintaining a sound risk management practice during this turbulent investment market is very important, and a good underwriting performance will alleviate the volatility in the company’s capital level.
As the economy slows down, pressure on HMFI’s profitability will mount. With the slowdown in revenue, the company will also feel increased pressure on expense control.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
Contacts:
Analysts
Sanghoon Oh, +852-2827-3404
sanghoon.oh@ambest.com
or
Moungmo
Lee, +852-2827-3402
moungmo.lee@ambest.com
or
Public
Relations
Jim Peavy, +(1) 908 439 2200, ext. 5644
james.peavy@ambest.com
or
Rachelle
Morrow, +(1) 908 439 2200, ext. 5378
rachelle.morrow@ambest.com
