MARCH 15, 2023 10:09 AM (EDT)
AM Best Affirms Credit Ratings of KBFG Insurance (China) Co., Ltd.
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FOR IMMEDIATE RELEASE
HONG KONG - MARCH 15, 2023 10:09 AM (EDT)
AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of KBFG Insurance (China) Co., Ltd. (KBFG China) (China). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect KBFG China’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM). The ratings also reflect the wide range of support that the company receives from its parent, KB Insurance Co., Ltd., in areas including underwriting and pricing, business development and reinsurance.
AM Best assesses KBFG China’s balance sheet strength at the very strong level, supported by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s capital and surplus has steadily increased driven by favourable operating performance with full profit retention. Given its relatively small capital base and the nature of its underwriting portfolio, KBFG China’s risk-adjusted capitalisation is exposed to volatility in the event of large losses. The company maintains a low underwriting leverage and a conservative investment appetite, and it has partnered with a panel of financially sound reinsurers to mitigate risks. The company has not paid dividends for the past five years and plans to continue retaining its profits fully to support growth over the short to medium term.
KBFG China has achieved positive operating profit for five consecutive years, with a low-to-mid single digit return-on-equity ratios reported during that period. The company’s claims experience on a net basis has been adverse and volatile due to the combined effect of a small net earned premium base and portfolio of large commercial accounts. Nonetheless, its operating expense ratio has been favourable due to its low acquisition costs and positive reinsurance commission income. Despite the volatile and marginal underwriting performance, the company’s interest income from its bank deposit investments has been a stabilizer to the bottom line.
As a foreign-owned insurer focusing on serving Korean Interests Abroad business, KBFG China has a defensible competitive advantage in this niche market. However, KBFG China has a limited market presence in China’s non-life industry with market share less than 1%. The company intends to maintain its underwriting risk tolerance appetite, and plans to explore investment opportunities with higher yields. AM Best views KBFG China’s ERM as appropriate for its risk profile.
While positive rating actions are unlikely over the near term, negative rating actions could occur if there is a significant decline in the company’s risk-adjusted capitalisation or absolute capital size. Negative rating actions may also arise from a sustained deteriorating trend in its operating performance, or from a reduced level of support from its parent group. Negative rating actions could also occur if there is a material change to the company’s shareholding structure such that there is a diminished level of explicit and implicit support from the new shareholders.
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.