HONG KONG: AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of KB Insurance Co., Ltd. of South Korea. The outlook of these Credit Ratings is stable.

The ratings reflect KBI’s balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. The ratings also reflect the support the company receives from its parent, KB Financial Group Inc. (KB Group) and its strategic importance to the KB Group.

KBI’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed at very strong, supported by the solid growth of its capital and surplus, and mainly driven by net profit retention. The company maintains a relatively low dividend payout ratio and has no outstanding debt obligations, which helped grow its capital size from profit retention. However, KBI’s asset and net premium leverage still remain relatively high compared with its domestic peers, although this has experienced a declining trend over the past five years.

KBI’s strong balance sheet strength assessment is supported by its conservative investment strategy, which prioritizes asset-liability management. Approximately 80% of the total invested assets are in fixed-income securities while alternative investments are increasing gradually, as the company aims to achieve a secure, higher investment yield.

Operating performance is assessed as adequate, with a five-year average return on equity of 9.5%. KBI’s underwriting profitability has shown a generally improving trend since 2015, albeit with a moderate level of volatility compared with its peers, although the company reported a steep decline in its net income in 2018 due to industry-wide deterioration in auto insurance profitability and increasing expenses in the long-term insurance line amid strong competition.

However, the company’s stable and growing investment income stream supports the overall operating performance by partially offsetting the moderately volatile underwriting performance.

KBI is the fourth-largest non-life insurance company in South Korea, with a market share of approximately 13% in terms of direct premium written in 2018, which has remained stable over the past five years amid strong market competition. The company has limited operations in overseas markets, with those businesses representing less than 1% of KBI’s consolidated gross premiums written in 2018.

As a wholly owned subsidiary of the KB Group, one of the largest financial groups in South Korea, KBI is strategically important to its parent in terms of business diversification, enabling the group to provide a wider spectrum of financial services. Since its affiliation to the group in 2015, KBI has received capital support from the KB Group, which also allowed it to increase ownership of KBI gradually.

As the KB Group emphasizes synergy among its subsidiaries to provide better one-stop services to customers, KBI benefits in various ways such as business opportunities through customer referrals from its affiliates and cross-selling through shared distribution channels, as well as group-wide marketing activities under one KB brand.

Negative rating actions could occur if there is a material deterioration in the company’s risk-adjusted capitalization, or if there is a significant decline in the parent company’s financial strength and credit profile.

AM Best has also affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a+” of Fubon Insurance Co., Ltd. of Taiwan). The outlook of these Credit Ratings  is stable.

The ratings reflect Fubon Insurance’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management.

Fubon Insurance’s risk-adjusted capitalization remained at the strongest level at year-end 2018, as measured by Best’s Capital Adequacy Ratio (BCAR). The prudent reserving practices and comprehensive reinsurance program adopted by the company continues to safeguard its capital position from undue underwriting risk, while the modest level of profit retention has contributed to partially mitigate volatility arising from capital market fluctuations over the past five years.

The company’s operating results continue to be stable and positive, mainly driven by the favorable investment earnings and profitable results from its domestic underwriting portfolio, albeit partially offset by operating losses from its China operations.

Fubon Insurance’s favorable business profile is underpinned by its long-term market-leading position, and solid brand recognition in Taiwan’s non-life insurance market, as well as its extensive distribution network. Going forward, AM Best expects the company’s overall market competitiveness to remain credit positive for its ratings.

Offsetting rating factors includes heightened uncertainties in domestic and overseas capital market conditions, coupled with rising foreign currency hedging cost. While the company has demonstrated an improving trend in operating profitability at its overseas business in China over the past few years, the continued negative results of the overseas portfolio remain an offsetting factor to the company’s overall operating performance. Moreover, the company’s underwriting portfolio is concentrated in catastrophe-prone geographies.

Positive rating actions could occur if the company demonstrates a sustainable improvement in its operating performance while maintaining robust risk-adjusted capitalization. Negative rating actions could occur if there are material capital and/or dividend payouts that lead to a substantial decline in its risk-adjusted capitalization.