| OLDWICK, N.J., Oct. 2001-A.M. Best Co.
has assigned an initial financial strength rating of A-
(Excellent) to Dongbu Insurance Company Limited, based
in Korea.
The rating reflects the company's strong operating performance
over the last five years, excellent market position and
the management's focus on profitability. The company's capital
position is second in the Korean non-life industry after
Samsung Fire & Marine.
The company has maintained steady growth in profit during
the last five years and is the only non-insurer among the
five largest non-life companies that increased its capital
base and generated a net profit during fiscal year 2000.
The company has maintained a liability matched investment
strategy and invests only in assets with similar or matched
maturity. Thus, the benchmark tool the company uses for
performance is return on revenue rather than return on invested
asset or return in invested capital, which is more commonly
used in Korea.
The company was able to steadily increase its market share
after the Asian crisis, given policyholders' increasing
awareness for financial strength of insurance companies.
Hence, the company has grown its market share to 14% in
the non-life insurance sector, which is the third largest
in terms of gross premium in Korea.
The company's exposure in affiliated investment is insignificant;
it was not negatively affected by the poor performance in
the Korean stock market, while most Chaebol-related insurers
suffered losses from group related equity investment. The
volatility analysis shows that the company has the least
volatility in underwriting profit and bottom line net profit
among the top five non-life insurers.
The sound financial position measured by a Korean solvency
ratio of 157% and Best's BCAR ratio in fiscal year 2000
is second only to Samsung in the Korean non-life industry.
Positive insurance underwriting result in fiscal year 2001
is expected given the sharp drop of loss ratio so far in
motor business. However, the company should use this favorable
environment to restructure the long-term portfolio in response
to the low interest rate environment.
Offsetting these positive attributes are the uncertainties
associated with the liberalization of the insurance market
and concentration of reinsurance credit risk. While the
industry could quickly form an informal cartel following
the de-tariff, new entrants such as mono-line insurers with
strong capitalization and differentiated distribution network
could bring new competition to the existing market order.
Moreover, new participants will tend to focus on market
share rather than profitability, hence giving pressure to
the existing companies. However, the company is well positioned
to withstand these potential pressures.
With the slide of the interest rate-which greatly affects
long-term savings products-the company faces significant
medium to long-term margin pressure as long-term savings
portfolio accounts for nearly 48% of total business. To
cope with this problem, the company should further shift
its portfolio to variable interest bearing products as well
as selling more protection types of business with less pure
savings portion attached.
A.M. Best Co., established in 1899, is the world's oldest
and most authoritative insurance rating and information
source. For more information, visit A.M. Best's Web site
at www.ambest.com.
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