Best Affirms Hyundai Marine ‘A-‘ Rating

November 18, 2004

A.M. Best Co. announced that it has affirmed the financial strength rating of “A-” (Excellent) of South Korea’s Hyundai Marine & Fire Insurance Company Limited (HMFI) with a stable outlook.

“The rating reflects HMFI’s strong market position, consistent investment performance and its relatively more profitable motor business than that of its peers,” Best said. “The company has achieved gradual improvement in its risk-based capitalization, which is in line with the company projection indicated to A.M. Best.
HMFI was able to maintain its strong market position with a premium market share of 15 percent as of fiscal year 2003, mainly as a result of its efficient distribution capabilities and well-diversified revenues.

“HMFI’s prudent investment strategy of investing mainly in fixed income instruments has enabled it to generate stable investment returns with limited volatility. At fiscal year-end 2003, the investment income was KRW 234 billion ($196 million), and the underwriting income was KRW -141 billion ($ -118 million). In the motor insurance business, HMFI has a lower loss ratio than the industry as the company has a better market share in the new car market where the premium is higher.”

Best also noted: “HMFI’s financial position has strengthened, as measured by the Best’s Capital Adequacy Ratio in fiscal year 2003. The Korean solvency ratio improved to 169 percent in fiscal year 2003 from 148 percent in fiscal year 2002. Going forward, low business growth with consistent financial performance will further strengthen risk-based capitalization. Moreover, the company has indicated that it plans to strengthen its local solvency ratio to the 200% level in the short to mid term and to the 300 percent level in the long term.”

The rating agency indicated, however, that, “these positive attributes are partially offset by HMFI’s aggressive underwriting leverage, low interest rate environment, higher expense ratio compared to its main competitors and the increasing popularity of alternative distribution channels.

“The low interest rate environment will continue to exert pressure on HMFI’s investment yield and its profitability level. To cope with this problem, the company is shifting its business portfolio toward variable interest products as well as protection-type products with less savings features.

“Market penetration of companies selling products through a direct distribution channel has increased in recent years; however, HMFI’s market share in the motor insurance business dropped for two consecutive years.”

In conclusion Best observed that “HMFI’s underwriting leverage remains high, although it is currently improving. The company’s expense ratio of 25.9 percent in fiscal year 2003 is higher than that of its main competitors, but it has indicated in its three-year plan that it will decrease this ratio to the lower 20s level.”

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