HONG KONG--(BUSINESS WIRE)--#insurance--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of �a� (Excellent) of Hanwha General Insurance Company Limited (HGI) (South Korea). The outlook of these Credit Ratings (ratings) is negative.

The ratings reflect HGI�s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. The ratings also reflect various forms of implicit and explicit support that the company receives from its parent, Hanwha Life Insurance Co., Ltd. (Hanwha Life).

HGI�s risk-adjusted capitalisation is at the strongest level, and is expected to remain at least at the strong level over the medium term, as measured by Best�s Capital Adequacy Ratio (BCAR). Recently slowed growth in retained earnings is expected to recover gradually over the coming years, with stabilising operating performance and no dividend payment since 2020. Nonetheless, AM Best notes that HGI�s overall capital and surplus remains highly susceptible to market interest rate movements due to the large available-for-sale assets. The company realigned its investment strategy with stronger priority in asset-liability management, which led to a materially improved asset-liability duration gap since 2020.

After reporting a large net loss in 2019, HGI returned to profit in 2020 through various remedial measures aimed at recovering its underwriting profitability and reducing costs, in addition to declined claims, especially in the auto insurance line due to reduced mobility during the COVID-19 pandemic. Its expense ratio notably improved, mainly driven by decreased acquisition costs from a reduction in new business volume. AM Best expects HGI�s expense ratio to improve further given its cautious approach to top-line growth, recent organisational restructuring, and gradual easing of expense burden from its subsidiary, Carrot General Insurance Co. Ltd., over the next few years. However, the loss ratio for long-term insurance, which accounts for approximately 80% of HGI�s gross premium written, remains high. AM Best expects that the significant rate hike in early 2020 for unprofitable legacy medical indemnity policies will require some time to take effect fully, given the large number of policies with long renewal cycles.

Meanwhile, investment income continues to be the main source of earnings for HGI. Although investment yield is expected to decline slightly with a more conservative asset allocation, a recent rebound of market interest rates is expected to alleviate pressure partially on running yields of its fixed income assets.

The negative outlooks reflect AM Best�s view that there is still continued pressure on HGI�s business fundamentals despite the improved performance in 2020. AM Best believes that further monitoring is necessary to ensure the sustainability of HGI�s adequate underwriting performance fundamentals, especially considering its still elevated loss ratio in the long-term insurance line and the potential negative change in claims trend after the COVID-19 environment improves.

The negative outlooks also reflect AM Best�s concern over HGI�s capital volatility upon market interest rate movements, especially in view of the recent upward trend and uncertainty around future interest rates in South Korea, as well as potential deviation of its operating performance from AM Best�s expectation.

Negative rating actions could occur if, despite various ongoing mitigation efforts by HGI, there is further deterioration in its underwriting and operating performance. Negative rating actions could occur if the company�s risk-adjusted capitalisation declines to a level that no longer supports the current balance sheet strength assessment. Negative rating actions also could occur if there is a reduced level of support from Hanwha Life, or deterioration in its credit profile that no longer enables it to provide rating lift to HGI.

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 media use of Best�s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best�s Credit Ratings and AM Best Rating Action Press Releases.

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