AM Best downgrades Korea P&I Club credit ratings – InsuranceNewsNet

HONG KONG–(BUSINESS WIRE)–
AM Best downgraded the financial strength rating to B++ (Good) from A- (Excellent) and the issuer’s long-term credit rating to “bbb+” (Good) from “a-” (Excellent) from Korea P&I Club (KP&I or the Club) (South Korea). The outlook for these credit ratings (ratings) has been revised from negative to stable.

The ratings reflect the strength of KP&I’s balance sheet, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate management of business risks. The ratings also recognize the wide range of support the club receives from the South Korea government.

The rating downgrades reflect AM Best’s revision of KP&I’s operating performance to adequate from strong, following a deterioration in underwriting profitability over the past several years. After unprecedented large claims losses in 2019, the Club experienced high net reinsurance costs (after taking into account ceding commission) and high claims frequency, resulting in another net loss of 4.6 billion KRW and a combined ratio of 169% in 2021. Although its underwriting profitability has outpaced global protection and indemnification (P&I) players in previous years, two significant losses in recent years have resulted in a deterioration the five-year average combined ratio of 114% (2017-2021), which no longer stands out positively from its peers.

AM Best notes the mitigating measures taken by the Club to restore its underwriting profit fundamentals, such as general premium increases, non-renewal of unprofitable policies and improved conditions in key programs. While AM ​​Best expects these initiatives to partially offset potential volatility, underwriting performance will likely remain vulnerable to high severity losses or increased claims frequency over the medium term. This is particularly true under the Club’s current reinsurance structure, given its increased net retention and loss-sensitive commission system compared to pre-2019 claims levels.

The balance sheet strength rating remains high, underpinned by KP&I’s highest level of risk-adjusted capitalization as measured by Best’s capital adequacy ratio (BCAR). The good valuation is also supported by its low underwriting leverage and a very cautious and liquid investment portfolio.

KP&I has a relatively small presence in the global P&I market compared to members of the International Group of P&I Clubsgiven that its activity is mainly concentrated in South Korea, with an emphasis on small and medium-sized vessels. Nevertheless, the Club relies on its local expertise and strong network among South Korean shipping companies to maintain a stable presence in its domestic market.

On the strength of its strategic role in supporting the sustainable development of maritime infrastructures in South Koreathe Club receives a wide range of support from the government, including grants, exemption from corporation tax, a policy of non-distribution of dividends to its members, as well as marketing and diplomatic efforts at the ‘foreign.

Ratings are communicated to rated entities before publication. Unless otherwise indicated, the ratings have not been changed as a result of this communication.

This press release relates to credit ratings that have been published on AM Best’s website. For all rating information relating to the release and relevant disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit AM Best’s Recent Rating Activity web page. For more information on the use and limitations of credit rating opinions, please see Best’s Guide to Credit Ratings. For more information on the proper use of Best’s Credit Ratings, Best’s Performance Reviews, Best’s Preliminary Credit Ratings and AM Best’s Press Releases, please see Guide to the Proper Use of Best’s Ratings and Reviews.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Based at United Statesthe company does business in more than 100 countries with regional offices in London, amsterdam, dubai, hong kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by AM Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Chanyoung Lee
Associate Director

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Christopher Sharkey
Manager, Public Relations

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Christie Lee
Senior Manager, Analytics

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Jeff Mango
General director,

Communications Strategy

+1 908 439 2200 ext. 5204

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Source: AM Best