HONG KONG: AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of Hyundai Marine & Fire Insurance Co., Ltd. (HMF) (South Korea). The outlook of these Credit Ratings (ratings) is stable.
[the_ad id=”32940″]The ratings reflect HMF’s balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management.
HMF’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed as very strong, supported by the issuance of hybrid bonds worth KRW 500 billion (approximately USD 450 million) in August 2018. Aside from the impact of hybrid bond issuance, the company benefited from further enhancement in its capitalization due to an increase in unrealized gains on its substantial holding of available-for-sale bonds, following the recent downward trend of market interest rates in South Korea.
Historically, HMF has reported a higher underwriting and asset leverage than the industry average; however, this is now in line with the overall industry level, due to the company’s recently improved capitalization. An offsetting factor is a declining interest coverage ratio, which AM Best expects to further drop in 2019, with the full-year dividend payment for its newly issued hybrid bonds.
Overall operating performance is assessed as adequate, as demonstrated by HMF’s stable earnings stream, as well as its combined ratio, which is in line with the industry average. Although underwriting performance deteriorated in 2018, owing to increasing losses in the auto insurance line, the insurer’s strong investment earnings backed by growing investment assets helped to support its overall performance.
With a market share of 17% in terms of direct premium written in 2018, HMF is the second-largest non-life insurer in South Korea, a position that the company has maintained for a long time amid increasing competition. The company has a widely recognized brand in its domestic market and a solid business relationship with Hyundai Motor Group, which is a stable source of business for its general insurance line. In addition, HMF has a diversified distribution channel strategy that supports its favorable business profile assessment.
Negative rating actions could occur if the company’s operating performance or risk-adjusted capitalization deteriorates significantly.