A.M. Best Asia-Pacific Limited has assigned a financial strength
rating of A- (Excellent) and an issuer credit rating of “a-” to Korea
P&I Club (KP&I) (South Korea). The outlook assigned to both
ratings is stable.
The ratings reflect KP&I’s support from the South Korean government,
strong risk-adjusted capitalization, profitable operating performance
and comprehensive reinsurance arrangement.
Established in 2000, KP&I is a mutual protection and indemnity club in
South Korea that provides shipowners with insurance coverage for the
third party liabilities related to the use of operating ships. Being
supervised by the Ministry of Land, Transport and Maritime Affairs, KP&I
receives a wide range of support from the government as KP&I is playing
a key role to promote marine infrastructure in South Korea.
KP&I’s risk-adjusted capitalization, as measured by Best’s Capital
Adequacy Ratio (BCAR), remains adequate to support the current ratings.
KP&I’s free reserves grew by an average of 37% in the past five years to
KRW 25 billion at the end of December 2011, owing to its strong
generation of net profits during the period. KP&I reported profitable
underwriting results due to its tight control of underwriting guidance
and claims management as it maintains its close relationship with
shipowners. KP&I maintained a conservative reinsurance arrangement by
increasing its excess loss capacity in 2012 in order to enhance the
stability of its underwriting performance.
Offsetting ratings factors are the uncertain outlook of the shipping
industry, rising reinsurance costs and the continued increase in claims
frequency. The growth of premium income is expected to slow in 2013
primarily due to the persistently depressed condition of the shipping
industry. Due to the hardening reinsurance market, KP&I faces increasing
reinsurance costs. In recent years, KP&I has experienced rising claims
frequency as the shipping companies are experiencing a deteriorating
quality of ship and crew management caused by the depressed shipping
Downward rating pressures may be triggered by a material decline in
KP&I’s risk-adjusted capitalization or a significant deterioration in
its operating performance.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a
comprehensive explanation of A.M. Best’s rating process and contains the
different rating criteria employed in the rating process. Key criteria
utilized include: “Understanding Universal BCAR”; “Catastrophe Analysis
in A.M. Best Ratings”; “Evaluating Country Risk”; and “Risk Management
and the Rating Process for Insurance Companies.” Best’s Credit Rating
Methodology can be found at www.ambest.com/ratings/methodology.
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