Hyundai Marine & Fire Upgraded

A.M. Best Co. has upgraded the financial strength rating of South Korean insurer Hyundai Marine & Fire Insurance Co. Ltd. (HMFI) to “A” (excellent) from “B++” (very good). The outlook is stable.

The rating reflects HMFI’s solid market position and consistent underwriting performance. The company’s risk-based capitalization has gradually improved. Its sound adequate solvency position is demonstrated by the Korean solvency ratio, which stood at 159 percent as of June 2003.

HMFI was able to maintain its strong market position as one of the largest non-life insurance companies in South Korea due to its efficient distribution capabilities and well-diversified revenues. Despite intense competition, HMFI’s underwriting results have improved to KRW -52 billion in fiscal year 2002 from KRW -159 billion in fiscal year 1999.

The company maintains one of the lowest loss ratios in the motor line business, reflecting its comparative advantage in the market. HMFI’s prudent investment strategy of investing mainly in fixed income instruments has enabled it to generate stable investment returns with limited volatility.

These positive factors are partially offset by HMFI’s aggressive underwriting leverage, low interest rate environment, the potential upward movement of reinsurance costs and the increasing popularity of direct channels and bancassurance.

The low interest rate environment will continue to exert pressure on the company’s investment yield and its profitability level given its existing investment assets and product mix. Companies employing a bancassurance model as their distribution strategy will pose challenges for HMFI, especially in the annuity and other deposit businesses. Marketing products through direct channels will also lead to greater competition in the industry.

HMFI’s underwriting leverage still remains high, although it is in an improving trend. A.M. Best will monitor the company on an ongoing basis to ensure that management maintains the pre-defined performance and capital adequacy benchmarks upon which the rating is assigned.