AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of NongHyup Property and Casualty Insurance Company Limited (NH P&C) (South Korea). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect NH P&C’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 implicit and explicit support the company receives from its ultimate parent, National Agricultural Cooperative Federation (NACF).

NH P&C’s risk-adjusted capitalisation is assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s capital and surplus increased significantly in 2023, largely due to the adoption of IFRS 17 while its balance sheet fundamentals remain unchanged. The company’s capital is being exposed to a relatively high level of volatility from interest rate movements compared with its domestic peers under the new accounting and local solvency standards. In response, the company is increasingly focusing on asset-liability management to enhance its capital management under the new solvency regime. NH P&C’s financial flexibility is supported by its good accessibility to the capital market underpinned by its previous issuances of subordinated debts and additional financial support from its immediate parent, NongHyup Financial Group Inc (NHFG). Other balance sheet strength considerations include NH P&C’s conservative investment portfolio, consisting mainly of fixed-income assets of good quality.

AM Best assesses NH P&C’s operating performance as adequate, with a return-on-equity ratio of 7.6% and a combined ratio of 92.9% (net/net, IFRS 17), as calculated by AM Best. Despite the release of a large contractual service margin (CSM) from long-term insurance, the company’s underwriting profitability in 2023 was negatively impacted by onerous contract provisions for long-term medical indemnity policies and large claim events in the general insurance line. Albeit with moderate volatility, AM Best expects NH P&C’s prospective underwriting performance to remain supported by its CSM base and the improved underwriting fundamentals of government policy insurance lines.

NH P&C is a domestic non-life insurer in South Korea, with a 3.7% market share in terms of gross insurance service revenue in 2023. The company is an exclusive provider of crop insurance in the country, which is largely operated under the principle of “no profit no loss,” and a major provider of other government policy insurance products for farmers, such as livestock and agricultural vehicle insurance. NH P&C focuses on gradually improving its underwriting profitability by expanding sales of protection-type products with high margins; however, its market share in the long-term insurance segment remains modest due to strong market competition. Distribution remains highly concentrated in the cooperative channel, which is a network of NACF’s members.

As a wholly owned subsidiary of NHFG, which is the financial arm of NACF and one of the largest financial groups in South Korea, NH P&C is strategically important to NACF, given its role as the exclusive provider of government policy insurance products to cooperative members. AM Best also recognises various forms of explicit support, such as the track records of capital support from NHFG, as well as direct reinsurance support and full expense reimbursement from the government for its crop insurance line.

Negative rating actions could occur if there is a significant deterioration in NH P&C’s balance sheet strength fundamentals. Negative rating actions also could arise if the level of support or the company’s strategic importance to NACF is reduced to a level that no longer supports the current level of enhancement. Positive rating actions could occur if NH P&C’s business profile improves in a sustainable manner, for example, through successful channel diversification that results in a materially enhanced market presence without deterioration in its risk-adjusted capitalisation and operating profitability.

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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