HONG KONG–(BUSINESS WIRE)–AM Best revised the outlook to stable from negative and affirmed the financial strength rating of A (excellent) and the long-term issuer credit rating of ‘a’ (excellent) of Hanwha General Insurance Company Limited (HGI) (South Korea).
The credit ratings (ratings) reflect the strength of HGI’s balance sheet, which AM Best assesses as strong, as well as its adequate operating results, neutral business profile and appropriate corporate risk management. The ratings also reflect various forms of implicit and explicit support that the company receives from its parent, Hanwha Life Insurance Co., Ltd. (Hanwha Life).
The revised outlook to stable primarily reflects HGI’s improved operating results as a result of the continued execution of various underwriting measures over the past two years, in addition to the positive impact of COVID-19 on claims losses, particularly in the auto insurance line. In its largest long-term insurance business line, AM Best expects the loss ratio to improve gradually over the medium term, given that much of its unprofitable legacy medical indemnity policy renewal cycles peak between 2022 and 2024. , reflecting the cumulative effect of interest rate hikes in recent years. AM Best also expects that the negative impact of its new subsidiary Carrot General Insurance Company Limited (Carrot Insurance) on HGI’s consolidated results will gradually diminish over the coming years as Carrot Insurance continues to build economies of scale.
Despite solid retained earnings growth from improved operating results, its capital base declined in 2021 and more sharply in the first quarter of 2022, driven by unrealized losses on available-for-sale bonds due to the unprecedented rapid rate of market interest rate increases percent in 2022
However, AM Best is of the view that the recent capital pressures resulting from interest rate increases do not necessarily mean an immediate and material deterioration in HGI’s economic balance sheet fundamentals. Its increased focus on asset-liability management over the past two years has resulted in an expansion of long-term bond holdings and a significantly narrowed asset-liability duration gap. This will help the company better manage the volatility of capital once IFRS 17 and K-ICS (a new and stricter solvency regime) come into effect in 2023, under which assets and liabilities are considered on the basis of market value . Nevertheless, AM Best will continue to closely monitor HGI’s risk-adjusted capitalization and interest rates.
HGI is the sixth largest non-life insurance company in South Korea with a market share of approximately 7% in terms of gross written premiums in 2021. The company receives various forms of implicit and explicit support from its parent company, Hanwha Life, the nation’s second largest life insurer in terms of premium income, including co-branding to increase operational synergies, product distribution and capital support.
Negative rating actions can occur if a company’s risk-adjusted capitalization falls to a level that no longer supports the current assessment of balance sheet strength. Negative rating actions may also occur if there is a reduced level of support from Hanwha Life or a deterioration in its credit profile that no longer allows it to secure an upgrade to HGI.
Ratings are communicated to rated entities prior to publication. Unless otherwise noted, ratings have not changed since this announcement.
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