AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” (Good) of Korea P&I Club (KP&I or the Club) (South Korea). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect KP&I’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect the wide range of support that the Club receives from the South Korean government.
KP&I’s risk adjusted capitalisation is assessed at the strongest level, as measured by Best’s Capital Adequacy ratio (BCAR), and it is expected to remain at that level over the intermediate term. The Club’s balance sheet strength is underpinned by its low underwriting leverage and a highly conservative investment portfolio.
Despite various underwriting initiatives, KP&I’s underwriting performance remained deteriorated and volatile in recent years following changes in its reinsurance structure, with higher net retention and a loss-sensitive commission scheme on proportional treaties, after a large loss in 2019. Nevertheless, KP&I has implemented stronger and more direct mitigation actions, such as general premium increases, non-renewal of historically unprofitable policies, as well as further enhancing terms in major programmes, AM Best expects the Club’s underwriting fundamentals and profit volatility to improve over the coming years.
KP&I has a relatively small presence in the global P&I market in comparison with members of the International Group of P&I Clubs, as its business is concentrated mainly in South Korea with a focus on small-to- medium sized vessels. Nonetheless, the Club leverages its local expertise and strong network with South Korean shipping companies to maintain a stable presence in the domestic market.
Underpinned by its strategic role to support the long-term development of maritime infrastructure in South Korea, the Club receives a wide range of support from the government, including subsidies, corporate tax exemption, no dividend payout policy to its members, as well as overseas marketing and diplomatic efforts.
Negative rating actions could occur if there is a material deterioration in KP&I’s operating profitability, despite various underwriting measures, to a level that no longer is suitable for the adequate assessment category. Negative rating actions could also arise if support from the South Korean government is reduced to an extent that no longer supports the current level of enhancement.
Positive rating actions may arise if the Club’s operating performance demonstrates continued improvement and remains at a level that outperforms its market peers for an extended period of time.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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