AM Best Revises Issuer Credit Rating Outlook to Negative for Korea P&I Club

AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of Korea P&I Club (KP&I or the Club) (South Korea). The outlook of the FSR is stable.

The Credit Ratings (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.

The Long-Term ICR outlook revised to negative from stable reflects increased pressure on the Club’s operating performance, following its sizeable net loss reported in 2024, which notably deviated from AM Best’s expectations. KP&I experienced two exceptionally large claim losses last year, which led to a record annual KRW 7.3 billion net loss and a combined ratio of 204% in 2024. This elevated concern regarding underwriting volatility and high susceptibility of its bottom line to the large claims under the current structure of a small premium base, high net retention level, and a loss-sensitive commission scheme. The Club’s five-year average combined ratio (2020-2024) of 139.5%, as calculated by AM Best, generally lags its global P&I peers with elevated volatility.

However, AM Best notes that following the recent underwriting restructuring with an improved risk portfolio, the Club’s overall risk exposure to potential high-severity losses has been materially reduced and its overall claims experience, excluding the two large claims, has shown a favourable trend since 2023. Nonetheless, AM Best expects that it will take some time for these mitigation measures to demonstrate sustained effects on the Club’s underwriting results.

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. Despite a moderate drop in available capital following a significant net loss in 2024, the Club’s balance sheet strength is supported by its low underwriting leverage and a highly conservative investment portfolio. Offsetting balance sheet strength factors include the Club’s small capital base, which can be susceptible to potential underwriting volatility from large losses and limited financial flexibility.

KP&I has a relatively modest presence in the global P&I market in comparison with the members of the International Group of P&I Clubs, in terms of geographic and product concentration. 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 government support across various areas, including subsidies, corporate tax exemptions, a no dividend payout policy to its members, as well as domestic/overseas marketing and diplomatic efforts.

Negative rating actions may occur if the operating results of KP&I do not demonstrate sustained improvement, despite various underwriting measures and becomes no longer suitable for the adequate assessment category. Negative rating actions also may 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 Club’s balance sheet strength fundamentals demonstrate material and 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. For more information, visit www.ambest.com.

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