HONG KONG–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a+” (Excellent) of DB Insurance Co., Limited (DBI) (South Korea). The outlook of these Credit Ratings (ratings) is positive.
The ratings reflect DBI’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management.
DBI’s risk-adjusted capitalisation is assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), backed by solid growth of its capital base through a strong earnings stream without support from other capital means. Its underwriting leverage and asset leverage have trended downward over the past years, remaining lower than most of its domestic peers.
Similar to most insurers in South Korea, DBI’s capital is exposed to some volatility stemming from interest rate movement. However, AM Best notes the company’s large base of retained earnings allows it to better withstand the unrealised losses from available-for-sale securities that were derived from the rapid interest rate rise in recent periods. AM Best also believes the company’s prudent asset-liability management will help it effectively manage capital volatility once IFRS 17 and K-ICS (a new and more stringent solvency regime) go live in 2023.
The continued positive outlooks reflect AM Best’s expectation that DBI will maintain the favourable trend in balance sheet strength metrics despite the current fast rising interest rates, supported by strong internal capital generation. Nonetheless, AM Best views that further monitoring is necessary to ensure that the company can continue to demonstrate the favourable trend, as well as positive distinction from its industry peers in balance sheet strength metrics, especially given the uncertainties in the interest rate environment and upcoming accounting changes.
DBI’s strong operating performance is underpinned by its five-year average combined ratio (2017-2021) that is the lowest among its domestic peers and a return on equity of 10.7%. While investment income continued to be a major and stable source of earnings supported by a robust asset base, its net income increased materially in 2021 mainly due to an improvement in underwriting results, especially in the auto insurance line. This was the result of a series of rate hikes in prior years, along with reduced claims frequency amid the COVID-19 pandemic, and a declining expense ratio in the same line due to the growing online channel. In the major line of long-term insurance, AM Best expects the elevated loss ratio to stabilise over the coming years due to the accumulated effect of rate hikes for unprofitable legacy medical indemnity policies in prior years, coupled with the company’s strengthened underwriting and claims management.
DBI remained the third-largest non-life insurer in South Korea, with a market share of approximately 17% in terms of gross premium written in 2021. Its business profile also is underpinned by the company’s strong brand in its domestic market, wide product offerings across the non-life and life insurance segments through its subsidiary (DB Life Insurance Co., Limited), and its leadership in digital innovation in South Korea’s insurance industry.
Positive rating actions could occur should DBI continue to maintain a positive trend in its balance sheet and the strongest level of risk-adjusted capitalisation, as measured by BCAR. Negative rating actions could occur if the company shows a sustained deterioration in its operating performance to a level that no longer supports the current strong assessment.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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