Fitch Assigns Hyundai Marine & Fire Insurance First-Time IFS 'A'; Outlook Stable

HYUNDAI MARINE & FIRE INSURANCE

16/04/2018 22:13

(The following statement was released by the rating agency)


Fitch Ratings-Hong Kong-April 15: Fitch Ratings has assigned South Korea-based 
Hyundai Marine & Fire Insurance Co., Ltd. (HDMF) an Insurer Financial Strength 
(IFS) Rating of 'A' (Strong). The Outlook is Stable.

KEY RATING DRIVERS

The rating reflects HDMF's consistently profitable operating results, strong 
business franchise, improving capital buffer, reinsurance protection and ongoing 
effort in managing its asset-liability yield spread.    

Fitch sees HDMF's business profile as strong in terms of distribution capability 
and market coverage.  HDMF is South Korea's second-largest non-life insurer in 
the country's competitive non-life insurance market, consistently capturing a 
market share of more than 16% over the previous three years. The company 
originates business through a wide distribution network, ranging from 
solicitors, agents, bancassurance to direct channels. The number of solicitors, 
including cross-selling groups, and agents in 2017 amounted to 20,110 and 6,500, 
respectively. Fitch expects strong distribution coverage, especially in the 
agents and solicitors channel, to enable HDMF to sustain quality business 
growth.   

 

Fitch considers HDMF's capitalisation as strong in light of its risk-based 
capital (RBC) in terms of its statutory solvency position and Fitch's Prism 
Factor-Based Capital Model (FBM) score. HDMF improved its regulatory RBC ratio 
to 187% at end-2017, from 158% at end-2016, after the 2017 issue of KRW500 
billion of subordinated debt, which is classified as part of solvency capital. 
The ratio is well above the regulatory minimum. HDMF has maintained its capital 
score, in terms of Fitch's Prism FBM, in the 'Strong' category due to its 
manageable risk asset exposure, which mainly includes equities and investment 
funds with equity exposure.     

 

HDMF's overall operating performance is strong. The company has made steady 
progress in further strengthening its operating stability over the previous four 
years, despite consistently low interest rate conditions. The imposition of more 
stringent underwriting guidelines and premium hikes helped improve the 
underwriting margin of HDMF's motor insurance. The business quality of its 
non-auto general insurance business has been very strong. Based on net earned 
premiums, the combined ratio of its non-auto general book of business averaged 
85% from 2015 to 3Q17.

HDMF actively manages the structure of its liabilities and assets associated 
with its long-term saving-type business, given persistently low interest rates. 
The company's liability funding costs have steadily declined as it continues to 
increase the proportion of floating-type reserves to fixed-rate reserves. HDMF 
has lowered its policy crediting rate, where appropriate, to respond to 
interest-rate movements in the market. The yield spread between the company's 
saving policies' assets and funding costs was about 0.42% for 2017 (2016: 
0.63%). 

HDMF arranges a comprehensive reinsurance programme to mitigate underwriting 
volatility and expand its capacity. It has ceded out business to a portfolio of 
reinsurers with sound financial strength through quota shares, surplus and 
excess of loss reinsurance treaties. Most of the reinsurers have IFS Ratings of 
'A-'. The risk retention ratio for the company's general insurance book was only 
38% for 3Q17, against 95% for automobile insurance.      

 

HDMF offers a broad spectrum of auto, marine, accident, health, property and 
casualty insurance products in South Korea. It also underwrites annuity and 
long-term saving insurance policies, similarly to other local non-life insurers. 
HDMF has expanded its footprint in international markets by establishing 
branches in Japan and the US and setting up an insurance subsidiary in China. 
Premium volumes from overseas operations remain insignificant to the group as a 
whole, but these operations provide geographical risk diversification for HDMF's 
non-life insurance portfolio.

RATING SENSITIVITIES

Triggers for a rating downgrade include:

- Weakening in HDMF's capitalisation, with its local RBC ratio dropping below 
175% or its capital score, as measured by Fitch's Prism FBM, at below 'Strong' 
over a sustained period,

- Deterioration in operating margin, in terms of pre-tax return on assets, below 
0.8% or a combined ratio, excluding saving products, higher than 103% for a 
prolong period, or

- An escalation in financial leverage to consistently higher than 31%.

Triggers for a rating upgrade include: 

-Strengthening in RBC, as measured by Fitch's Prism FBM, to the upper range of 
'Very Strong' category or higher,

-Stronger operating stability, with pre-tax return on assets consistently above 
1.3% and a combined ratio, excluding saving products, persistently below 97%, 
and

-Maintaining its financial leverage at a level lower than 25% on a sustained 
basis.

Contact: 

Primary Analyst

Terrence Wong

Director

+852 2263 9920

Fitch (Hong Kong) Limited 

19/F Man Yee Building

68 Des Voeux Road 

Central, Hong Kong

Secondary Analyst

Jeffrey Liew

Senior Director

+852 2263 9939

Committee Chairperson

Siew Wai Wan 

Senior Director

+65 6796 7217

Date of Relevant Rating Committee: 29 March 2018

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Insurance Rating Criteria (pub. 30 Nov 2017)

https://www.fitchratings.com/site/re/905036

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/site/dodd-frank-disclosure/10024193

Solicitation Status 

https://www.fitchratings.com/site/pr/10024193#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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