Best Affirms ‘A-‘ Rating on Korea’s Hyundai Marine & Fire

December 23, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating (FSR) of “A-” (Excellent) of South Korea’s Hyundai Marine & Fire Insurance Company, Ltd. (HMFI). Best also assigned an issuer credit rating (ICR) of “a-” to HMFI. The outlook on both ratings is stable.

“The rating reflects HMFI’s solid market position, stable investment performance and the gradual improvement in its risk-based capitalization,” said Best. “The company’s lower loss ratio in the motor insurance business is another positive factor.

“Supported by its strong brand name, HMFI was able to maintain its strong market position as being one of the major non-life insurance companies in Korea with a premium market share of 15 percent as of fiscal year 2004. The company has been actively promoting bancassurance since fiscal year 2004 and business generated from this channel is increasing quickly.

“HMFI’s prudent strategy of investing mainly in fixed income instruments has enabled the company to consistently generate stable investment returns with limited volatility. Investment income was KRW 262 billion (USD 256 million) and underwriting income was KRW -149 billion (USD -145 million) in fiscal year 2004. In addition, the company does not have any group affiliated investments.

“HMFI’s financial position strengthened marginally in fiscal year 2004, as measured by the Best’s Capital Adequacy Ratio (BCAR). The Korean solvency ratio also experienced a 1 percent increase to 170 percent in 2004 compared to the previous year. This is due to high business growth as well as strengthening of the solvency requirement guideline by taxing unrealized capital gains. The management of the company has indicated to A.M. Best that capitalization will be further strengthened.

“These positive attributes are partially offset by the margin pressure created by alternative distribution channels and the higher expense ratio of the company compared to its main competitors.

“Market penetration of companies using direct distribution channels has increased. A key characteristic of this type of channel is that motor insurance products are sold with lower expense loading. Also, the popularity of bancassurance has increased with broadening of products that are allowed to be sold through direct distribution. As competition from companies using these channels is increasing, profitability will naturally decrease. A company’s ability to succeed in this competitive environment will depend on HMFI’s expense controls and risk management ability. In fiscal year 2004, the expense ratio of HMFI decreased to23 percent from 26 percent in previous year.”

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