Fitch Affirms Hanwha General Insurance's IFS Rating at 'A'; Outlook Stable

Hanwha General Insurance

11/06/2019 08:05

(The following statement was released by the rating agency)


Fitch Ratings-Hong Kong-June 11: 

Fitch Ratings has affirmed the Insurer Financial Strength (IFS) Rating of South 
Korea-based Hanwha General Insurance Co., Ltd. (HGI) at 'A' (Strong). The 
Outlook is Stable.

Key Rating Drivers

The rating affirmation reflects HGI's 'Moderate' business profile, and 'Strong' 
capitalisation and financial performance. The rating also recognises HGI's 
ownership linkage with Hanwha Life Insurance Co., Ltd. (HLI, IFS Rating 
A+/Stable). According to Fitch's group rating methodology, we view the strategic 
status of HGI within HLI as 'Important' considering its earnings contribution 
and operating scale. 

Fitch has explicitly factored in a one-notch uplift into HGI's standalone credit 
profile to reflect HLI's majority ownership of HGI since its establishment in 
1946. HLI has injected total capital of KRW296 billion into HGI by participating 
in its rights offerings since 2000. HLI had a stake of about 51.4% in the 
insurer as of 31 March 2019. Fitch believes HLI will continue to provide 
distribution and capital support to HGI as it grows.

Fitch ranks HGI's business profile as 'Moderate' compared with that of other 
Korean non-life insurers, underpinned by its position as a mid-sized non-life 
insurer in the country, somewhat diversified business portfolio and distribution 
channels, and moderate business risk profile. HGI maintained a market share of 
more than 6% in terms of direct premiums written in the last three years by 
using the sales network of HLI to cross-sell its products. A significant portion 
of its business is from affiliates within the Hanwha group. Fitch scores HGI's 
business profile at 'a-' under the agency's credit-factor scoring guidelines 
based on the ranking.

HGI has strengthened its capital adequacy, following issuance of KRW190 billion 
of hybrid securities and KRW350 billion of subordinated debt in 2018. Its score 
on Fitch's Prism Factor-Based Model (FBM) improved to well into 'Adequate' at 
end-2018. The company's statutory risk-based capital (RBC) ratio rose to 195% by 
end-2018 (end-2017: 181%). Its capital strength may be partly offset by high 
financial leverage, which increased to 40% by end-2018 (end-2017: 18%), although 
its fixed-charge coverage ratio is solid.

The financial performance of the company declined, but remained strong, within 
the guidelines for an 'a' score under Fitch's credit-factor scoring guidelines. 
HGI's return on equity fell to 7% in 2018 from 15% in 2017, while pretax 
operating return on assets declined to 0.9% from 1.6%. The overall combined 
ratio, excluding the savings business, deteriorated to 104% in 2018 from 100% in 
2017 mainly due to the high loss ratio in the auto business. Fitch expects the 
premium increasesin auto insurance in 2019 to support better underwriting 
results, but significant improvement is unlikely in the near term. 

The company has increased its asset allocation to alternative investments to 
enhance its investment yield and to extend asset duration, aside from using 
long-term bonds. The alternative-investment portfolio consists mainly of 
infrastructure projects backed by governments, and renewable energyand 
real-estate projects. HGI's exposure to risky assets relative toits capital 
increased to 269% by end-2018 from 216% at end-2017,but Fitch views the current 
levelas manageable given its capital score in terms of Fitch's Prism FBM. 

Rating Sensitivities

Downgrade sensitivities include:

- a material change in the ownership structure, with HLI losing its controlling 
stake in HGI; or

- a downgrade of HLI's IFS Rating to below A; or

- a sustained decline in HGI's capital position, with its Prism FBM score 
dropping to below the mid-range of 'Adequate' or HGI's statutory RBC ratio below 
175%; or

- a deterioration in HGI's operating margin with its pretax operating return on 
assets consistently below 0.65%, its overall combined ratio, excluding saving 
products, above 106 %, or its fixed-charge coverage ratio dropping below 5.0x 
(end-2018: 6.9x)on a sustained basis.

Upgrade rating sensitivities include:

- a significant strengthening in HGI's business profile, including more 
diversified distribution channels and better product mix; and

- an increase in its capital buffer, as measured by Fitch's Prism FBM, to the 
upper range of the 'Strong' category or higher; and

- improving operating performance with its overall combined ratio, excluding 
saving products, persistently below 98%.

Hanwha General Insurance Co., Ltd.; Insurer Financial Strength; Affirmed; A; 
RO:Sta

Contacts: 

Primary Rating Analyst

Claire Lee, 

Analyst

+852 2263 9618

Fitch (Hong Kong) Limited

19/F Man Yee Building 60-68 Des Voeux Road Central

Hong Kong

Secondary Rating Analyst

Terrence Wong, 

Senior Director

+852 2263 9920

Committee Chairperson

Siew Wai Wan, 

Senior Director

+65 6796 7217

 

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@thefitchgroup.com; Yee Man Ko, Hong Kong, Tel: +852 2263 9953, Email: 
alanis.ko@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Insurance Rating Criteria (pub. 11 Jan 2019)

https://www.fitchratings.com/site/re/10058790

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/site/dodd-frank-disclosure/10077213

Solicitation Status 

https://www.fitchratings.com/site/pr/10077213#solicitation

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https://www.fitchratings.com/regulatory

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