AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of KBFG Insurance (China) Co., Ltd. (KBFG China) (China). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect KBFG China’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM). The ratings also reflect the wide range of support that the company receives from its parent, KB Insurance Co., Ltd., in areas of underwriting and pricing, business development and reinsurance.

AM Best assesses KBFG China’s balance sheet strength at the very strong level, supported by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s consolidated capital and surplus has continued to increase driven by positive operating performance with full profit retention. Given its relatively small capital base and the nature of its underwriting portfolio, KBFG China’s risk-adjusted capitalisation is exposed to volatility in the event of large losses. The company maintains a low underwriting leverage and a conservative investment appetite, and it has partnered with a panel of financially sound reinsurers to mitigate risks. The company has not paid dividends for the last five years and plans to continue retaining its profits fully to support growth over the short to medium term.

KBFG China has achieved positive operating profit over the last five years (2019 to 2023), with low-to-mid single digit return-on-equity ratios reported during the period. The company’s claims experience on a net basis has been adverse and volatile due to the combined effect of a small net earned premium base and portfolio of large commercial accounts. The company incurred a major commercial fire loss in 2023. With a very low level of net retention ratio, the loss on a net basis has had a limited impact on KBFG China’s underwriting results. Notwithstanding, the loss has had an adverse impact on the company’s statutory solvency position as the reinsurer counterparty credit exposure has materially increased. KBFG China has projected that the solvency ratio will improve as reinsurance receivables are gradually settled in 2024.

Overall, KBFG China’s operating performance has remained profitable and supportive of the adequate assessment, owing to its low acquisition costs and positive reinsurance commission income, as well as the stable stream of interest income from the bank deposit investments.

As a foreign-owned insurer focusing on serving Korean interests abroad business, KBFG China has a defensible competitive advantage in this niche market. However, KBFG China has a limited market presence in China’s non-life industry with less than 1% of total market share. AM Best views KBFG China’s ERM as appropriate for its risk profile.

Negative rating actions may occur if there is an adverse development in KBFG China’s reinsurance recoverable due to reinsurance contract disputes, which lead to a material decline in the company’s risk-adjusted capitalisation and/or capital size. Negative rating actions may also arise from a sustained deteriorating trend in the company’s operating performance. Additionally, negative rating actions could occur if there is a reduced level of support from KB Insurance Co., Ltd., or if there is a material change to KBFG China’s shareholding structure, such that there is a diminished level of explicit and implicit support from the new shareholders. Positive rating actions may occur if there is a significant increase in KBFG China’s capital size with robust risk-adjusted capitalisation.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

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