Best’s News & Research Service - August 24, 2018 11:37 AM (EDT)
A.M. Best Affirms Credit Ratings of Korea P&I Club
- August 24, 2018 11:37 AM (EDT)
Hong Kong //BestWire// - A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Korea P&I Club (KP&I) (South Korea). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect KP&I’s balance sheet strength, which A.M. Best categorizes as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect the wide range of support the club receives from the South Korea government.
KP&I’s balance sheet strength is underpinned by risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Although the growth rate of free reserves in 2017 slowed because of the reduced earnings from exchange rate losses, the five-year average growth rate stands high at 11%. The club’s low underwriting leverage and conservative investment profile also support its strong capitalization.
KP&I has maintained highly profitable operating performance with the five-year average return on equity of 10% with a modest level of volatility. However, the club experienced a sharp drop of net income in 2017 mainly due to the impact of exchange rate movement on its underwriting and investment performance.
With its business primarily concentrated in Korea, KP&I maintains about 16% of market share based on premium within the domestic market. Amid the prolonged recession in the shipping industry and increasing competition, multiple initiatives are on the way to secure its market position: strategic partnership with a member of International Group of P&I Clubs, new business opportunity under the government’s plan to build new vessels to support Korean shipping industry, and overseas expansion plan.
KP&I’s risk management capabilities are considered appropriate given its risk profile. The club follows strict underwriting guidelines and maintains conservative reinsurance strategy.
KP&I was founded in 2000 under the Ship-Owners’ Mutual Protection and Indemnity Association Act. The club benefits from various support from the South Korea government pivoting on its strategic role in the long-term development of the country’s marine infrastructure, which serves as a positive rating factor.
Negative rating actions could occur if there is a material decrease in the club’s risk-adjusted capitalization or sustained deterioration in its operating performance.
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 A.M. 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 A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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