HONG KONG–(BUSINESS WIRE)–AM Best revised the outlook from negative to stable 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) (Korea) from South).
The credit ratings (ratings) reflect the strength of HGI’s balance sheet, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate management of business risks. The ratings also reflect various forms of implicit and explicit support the company receives from its parent company, Hanwha Life Insurance Co., Ltd. (Hanwha Life).
The revised outlook to stable primarily reflects HGI’s improved operating performance through the continued execution of various underwriting actions over the past two years, in addition to the positive impact of COVID-19 on claims, particularly in the motor insurance branch. In the largest long-term insurance line of business, AM Best expects the loss ratio to gradually improve over the medium term, as a large part of its policy renewal cycles unprofitable legacy medical insurance companies peak between 2022 and 2024, reflecting the cumulative effect of rate hikes in recent years. AM Best also expects the negative impact of its start-up subsidiary, Carrot General Insurance Company Limited (Carrot Insurance), on HGI’s consolidated results to gradually diminish over the next few years as Carrot Insurance continues to make economies of scale.
Despite strong retained earnings growth driven by improved operating performance, its capital base declined in 2021, and more sharply in the first quarter of 2022, due to unrealized losses on available-for-sale bonds due the unprecedented rapid pace of rising market interest rates. in 2022.
However, AM Best believes that the recent pressure on capital from rising interest rates does not necessarily indicate an immediate and significant deterioration in the fundamentals of HGI’s economic balance sheet. Its increased emphasis on asset-liability management over the past two years has resulted in an expansion of long-term bond assets and a significantly reduced asset-liability duration spread. This will help the company better manage capital volatility once IFRS 17 and K-ICS (a new, stricter solvency regime) are implemented in 2023, whereby assets and liabilities are considered in based on market value. Nonetheless, AM Best will continue to closely monitor HGI’s risk-adjusted capitalization and interest rate environment.
HGI is the sixth largest non-life insurance company in South Korea, with a market share of around 7% in terms of gross written premiums in 2021. The company receives various forms of implicit and explicit support from its company parent, Hanwha Life, the nation’s second-largest life insurer by premium income, including co-branding to increase operational synergy, product distribution and capital support.
Negative rating actions could occur if the company’s risk-adjusted capitalization declines to a level that no longer supports the current assessment of balance sheet strength. Negative rating actions could also occur if Hanwha Life’s level of support is reduced or its credit profile deteriorates such that it no longer allows it to upgrade HGI’s rating.
Ratings are communicated to rated entities before publication. Unless otherwise indicated, the ratings have not been changed as a result of this communication.
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