Feb 5, 2013, 11:00am

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 industry.

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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