Korean Reinsurance has shown adequate operating performance that is underpinned by relatively low volatility in its underwriting profit yet with a thin margin over the past five years, thanks to a large proportion of personal line business, notes AM Best.
The reinsurer’s operating performance also is supported by robust investment income mainly generated from fixed income securities, which provide a sufficient buffer to its overall earnings.
Through its retrocession programmes, Korean Re effectively limited its net losses from an increasing number of natural catastrophe events especially in Asia in recent years. Despite additional losses incurred from COVID-19 over the first nine months of 2020, its overseas business remained profitable.
AM Best says that the profitability of Korean Re’s domestic personal lines, which largely accounted for more than half of KRE’s net premium base, worsened in 2019 due to recent deterioration in the loss ratios of the primary medical and auto segments. Although the magnitude was limited effectively by appropriate treaty commission schemes, KRE plans to reduce the share of this business gradually over the coming years.
AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of Korean Re. The outlook of these credit ratings is stable.
Balance sheet strength
The ratings reflect KRE’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management.
KRE’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio, is assessed as being at the strongest level, supported by solid and stable internal capital generation over the past five years. The impact of a series of share buybacks in 2020, which amounted to about 4% of the company’s capital and surplus at year-end 2019, had limited impact on its risk-adjusted capitalisation. The company’s balance sheet strength also is underpinned by its strong financial flexibility, proven by a track record of successful hybrid bond issuance in overseas and domestic capital markets, as well as its conservative investment portfolio that is focused on good quality fixed income securities.
As the only local reinsurer in South Korea, KRE maintains a dominant position with a share of approximately 60% of the non-life reinsurance market. Given its long-term relationship with primary insurers, profound market knowledge, and better pricing capabilities derived from its immense market database, AM Best expects the company’s leading position in the domestic market to remain unchallenged over the medium term despite increasing competition.
The company’s overseas portfolio gradually expanded over the past five years to account for 25% of total gross premium written in 2019, of which 45% was sourced from non-Asian markets.