AM Best has upgraded the long-term issuer credit rating (ICR) of Korean Reinsurance Company (KRE) to “a+” (Excellent) from “a” (Excellent) and affirmed its financial strength rating (FSR) of A (Excellent).
The outlook for the long-term ICR has been revised to stable from positive, while the outlook for the FSR remains stable.
The upgraded Long-Term ICR reflects improvements in KRE’s balance sheet strength, assessed as very strong by AM Best. The ratings also consider the company’s adequate operating performance, favorable business profile, and appropriate enterprise risk management framework.
KRE’s improved balance sheet strength is underpinned by a higher risk-adjusted capitalization. This improvement was driven by hybrid bond issuance in 2023, solid profit retention, and reduced underwriting risk following a restructuring of its business portfolio.
AM Best expects these factors to help KRE maintain its capital adequacy over the medium term. The company’s focus on discontinuing unprofitable business lines and fostering organic growth in retained earnings is anticipated to mitigate underwriting risk.
Additionally, KRE’s asset and liability management capabilities, coupled with its conservative investment strategy and strong access to capital markets, support its balance sheet strength.
Operating performance is assessed as adequate, with a return on equity of 9.5% and a non-life combined ratio of 95.5%, according to AM Best’s calculations under IFRS 17. In 2023, KRE reduced its domestic insurance service revenue by discontinuing underperforming treaties. The company is expected to benefit from a more profit-oriented underwriting approach in the domestic market.
However, its overseas business faced challenges due to high-severity natural catastrophe losses. To address this, KRE is reducing its exposure to catastrophe property risks while expanding into non-catastrophe segments, including casualty and specialty lines.
Investment income remains a robust contributor to performance, supported by an expanding asset base and favorable returns from foreign bonds and alternative investments.
As the only domestic reinsurer in South Korea, KRE holds a dominant market position. In 2023, it ranked as the sixth-largest reinsurer globally by gross insurance service revenue (ISR) under IFRS 17 reporting.
Despite increasing competition in the domestic market, AM Best expects KRE’s leadership position to remain secure in the medium term. The company’s growth in the South Korean coinsurance market is seen as an additional source of earnings, while its overseas business, which now accounts for over one-third of gross ISR, supports diversification.
Potential negative rating actions could arise from sustained declines in operating performance or material reductions in risk-adjusted capitalization, possibly due to multiple medium- or large-scale catastrophe losses.
Conversely, positive rating actions could occur if KRE’s operating performance demonstrates consistently strong results that set it apart from industry peers.
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