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Oct 2022

South Korea: Local reinsurer enjoys stable operations

Source: Asia Insurance Review | Jan 2020

The operating performance of Korean Reinsurance Company (KRE) is assessed as adequate, underpinned by a five-year average combined ratio of 98.9% and return-on-equity ratio of 6.8%, said AM Best. 
The Seoul-headquartered reinsurer holds a large book of personal line proportional treaties, which accounted for more than half of net premium written in 2018; this has helped KRE maintain a relatively stable underwriting performance despite a thin profit margin. Sliding scale commission schemes and loss participation terms in personal line treaties have provided additional stability to its underwriting profitability. 
Although its overseas business was impacted negatively by higher-than-expected catastrophe losses in Asia in recent years, KRE was able to limit its net losses successfully through effective retrocession programmes, notes AM Best.
In addition, KRE’s robust investment income, a majority of which is generated from fixed-income securities, provides sufficient buffer to overall bottom line results.
KRE maintains a dominant position in South Korea’s reinsurance market, with approximately a 60% market share in terms of gross premiums written (GPW) in 2018. With more than 60 years of directly working with primary insurers in South Korea, the company benefits from its strong relationship with domestic clients and profound market knowledge, as well as an immense amount of data it accumulated for better pricing and risk management. 
Although regional diversification is limited compared with other major global reinsurers, overseas business increased gradually over the past five years accounting for 25% of total GPW in 2018. 
AM Best has affirmed the financial strength rating of A (excellent) and the long-term issuer credit rating of “a” of KRE. The outlook of these credit ratings is stable.
The ratings reflect KRE’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management.
Listed KRE shows a high level of financial flexibility, which is proven by a track record of successful capital raising through the issuance of hybrid bonds in overseas and domestic capital markets. Its conservative approach to asset allocation remains supportive of the company’s current balance sheet strength assessment, although loans and alternative investment holdings have increased. A 
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