In the span from 2019 to 2023, KBFG Insurance (China) has consistently delivered positive operating profits, maintaining low-to-mid single-digit return-on-equity ratios, as observed by AM Best.
Despite this commendable performance, the company’s claims experience on a net basis has been marked by adversity and volatility. This trend can be attributed to a combination of factors, including a modest net earned premium base and a portfolio comprising substantial commercial accounts. Of notable concern is the occurrence of a significant commercial fire loss in 2023.
Despite these challenges, KBFG China has managed to limit the impact of losses on its underwriting results due to its notably low net retention ratio. Nevertheless, the loss has exerted pressure on the company’s statutory solvency position, with an evident rise in counterparty credit exposure to reinsurers. KBFG China anticipates a gradual improvement in its solvency ratio through the settlement of reinsurance receivables throughout 2024.
The overall operating performance of KBFG China has remained profitable, buoyed by factors such as low acquisition costs, positive reinsurance commission income, and a stable stream of interest income from bank deposit investments.
AM Best Affirms Ratings
In light of these developments, AM Best has affirmed KBFG China’s Financial Strength Rating of ‘A-’ (Excellent) and the Long-Term Issuer Credit Rating of ‘a-’ (Excellent). These ratings are accompanied by a ‘Stable’ outlook.
These ratings underscore KBFG China’s robust balance sheet strength, characterized by a very strong risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s consolidated capital and surplus have witnessed consistent growth driven by profitable operations. However, the relatively small capital base and the composition of the underwriting portfolio expose KBFG China’s risk-adjusted capitalization to volatility in the face of significant losses.
Moreover, the company maintains a conservative investment stance and low underwriting leverage while partnering with financially sound reinsurers to mitigate risks. Notably, KBFG China has refrained from distributing dividends for the past five years, opting instead to retain profits to fuel growth in the short to medium term.
Business Profile and Outlook
As a foreign-owned insurer catering primarily to Korean interests abroad, KBFG China holds a defensible competitive position in its niche market. However, its presence in China’s non-life insurance industry remains modest, accounting for less than 1% of the total market share. AM Best considers KBFG China’s enterprise risk management to be appropriate given its risk profile.
