Best Affirms Dongbu’s ‘A-‘ Rating

December 29, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A-” (Excellent) and assigned an issuer credit rating (ICR) of “a-” to Korea’s Dongbu Insurance Company, Ltd. with a stable outlook.

“The ratings reflect Dongbu’s strong capitalization, excellent underwriting performance, well-diversified insurance portfolio and multi-channel distribution strategy,” said Best. “Management’s clear focus on profitability is another positive factor.

“Dongbu maintains strong risk-based capitalization relative to other non-life companies in Korea. However, risk-based capitalization, as measured by the Best’s Capital Adequacy Ratio (BCAR), did not improve in fiscal year 2004 as the company experienced high growth in revenue and total assets due to increased sales stemming from the bancassurance channel.”

Best noted that the company’s “net income improved to KRW 114 billion ($111 million) in fiscal year 2004 compared to KRW 45 billion ($44 million) in fiscal year 2003.” The rating agency indicated that it “expects net income to further increase in fiscal year 2005, as underwriting income is showing signs of improvement compared to 2004. Dongbu maintains one of the lowest expense ratios in the Korean non-life industry, which is a key advantage.”

Best said: “Dongbu maintains a market share of 14 percent in the Korean non-life market. In fiscal year 2003, the company successfully entered the bancassurance channel and continues to be one of the major players in this channel. Revenue derived from direct distribution channels is still small as this initiative was launched in fiscal year 2004.

“Offsetting these positive attributes are the high uncertainties related to alternative distribution channels and the increase in asset risk due to the expanding sales of long-term savings products through bancassurance.

“Currently, the Korean non-life market is undergoing a major change in distribution methods, whereby more products will be sold through direct distribution channels and bancassurance channels. Market consensus is that more than 20 percent of the non-life products will be sold through theses alternative channels in a few years. It remains to be seen if Dongbu can maintain its current profitability given these distribution shifts.”

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