HONG KONG--(BUSINESS WIRE)-- A.M. Best Co. has revised the issuer credit rating (ICR) outlook to positive from stable and affirmed the financial strength rating of A (Excellent) and the ICR of “a” of Dongbu Insurance Company, Ltd. (Dongbu) (South Korea). The outlook for the FSR is stable.
The ratings reflect the robust risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR), continuous improvement in operating performance and the company’s proactive risk management. The regulatory solvency ratio continued to increase to 262% at the end of June 2012, despite the tightening standards in the past years. Dongbu’s adjusted capital and surplus grew by an average of 18% to KRW 2,205 billion, which was primarily driven by strong growth of net profit in the past five years.
Dongbu continued to maintain its high level of operating efficiency, owing to the low level of administrative costs, while its top line growth outpaced the industry. The company has been actively employed in the alternative channels to balance growth and profitability, as evidenced by the strong growth in sales of auto insurance through the online channel. The auto underwriting results improved in the past year, owing to the favorable regulatory changes including the introductions of a co-payment system in claims and a maximum limit on sales commissions, in addition to the cost reduction by promoting online sales.
The investment income doubled to KRW 585 billion from five years ago, which is led by Dongbu’s active investment management and the strong growth of the investment asset. The investment asset increased by an average annual growth rate of 25% to KRW 14,300 billion during the same period due to the robust growth of the long-term insurance premium. More recently, Dongbu started to replace risky assets with fixed income assets including foreign currency-denominated bonds. In addition, the company scaled back the sale of single premium products and lowered guarantee rates in long-term products. This action is expected to help Dongbu stabilize its investment performance and secure its stable investment margin going forward.
Partially offsetting these positive rating factors is the fierce competition in the insurance market and the potential volatility of Dongbu’s risk-adjusted capitalization due to investments in its affiliates, of which amounts are levied by a greater risk charge than non-affiliates. Dongbu currently invests in both its non-insurance and insurance affiliates including Dongbu Life Insurance Company Ltd.
A downgrade in the ratings could arise if there is a material deterioration in Dongbu’s risk-adjusted capitalization and weakening of its operating performance.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding Universal BCAR”; “Rating Members of Insurance Groups”; “Evaluating Country Risk”; “Catastrophe Analysis in A.M. Best Ratings”; and “Risk Management and the Rating Process for Insurance Companies.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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Source: A.M. Best Co.