A.M. Best has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Korea P&I Club (KP&I) (South Korea). The outlook for both ratings is stable.
The ratings reflect KP&I’s solid risk-adjusted capitalization, favorable operating performance and the continued support from the South Korean government, with the company being named as a non-profit organization that supports the development of the marine infrastructure in Korea.
KP&I’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remained solid to support the current ratings. The club’s free reserves grew at 9% year-on-year to KRW 42 billion in 2014, considerably lower than the 5-year compound growth rate of 30%, mainly due to deterioration in underwriting profitability. Notwithstanding, the accumulation of net profit, benefited by an exemption in corporate tax, coupled with a conservative reinsurance program, provides the club a sufficient buffer to absorb potential losses in adverse scenarios. The company also benefited from a relatively stable stream of investment income due to its conservative investment policy.
Partially offsetting factors include the recession in the global shipping industry that is particularly affecting the South Korean market and competition from insurers and other International Group P&I Clubs.
KP&I is well-positioned at its current rating level. Positive rating actions could occur if the company further strengthens its absolute and risk-adjusted capitalization while maintaining a strong operating performance. Negative rating actions could occur if there were a significant deterioration in KP&I’s risk-adjusted capitalization due to significant operating losses.
Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.
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