AM Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of “a-” (Excellent) to Korea Shipping Association (KSA) (South Korea). The outlook assigned to these Credit Ratings (ratings) is stable.

The ratings reflect KSA’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

As the statutory entity established under the Korea Shipping Association Act, KSA is a non-profit mutual organisation with an established and specialised market position in South Korea’s marine insurance segment, underpinned by its dominant membership base in the coastal shipping industry. While KSA’s business is concentrated in the domestic maritime sector, its insurance product portfolio is diversified across hull and machinery, as well as protection and indemnity-type coverages, and it focuses on small-sized coastal vessels with smaller risk exposures relative to ocean-going vessels. KSA also supports the coastal shipping industry through diverse non-insurance business, which helps strengthen its relationship with members.

AM Best expects KSA’s risk-adjusted capitalisation to remain comfortably at the strongest level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). KSA’s balance sheet strength is supported by its low underwriting leverage and a conservative and liquid investment portfolio, while its reinsurance programme mitigates potential capital volatility from large losses. Although KSA has limited financial flexibility to access external capital markets as a mutual organisation, AM Best recognises potential financial support from the South Korean government and the association’s capability to charge special expenses on its members, if needed. KSA’s policy to fully retain insurance profits in non-distributable contingency reserves ensures that it maintains a sufficient capital buffer and reduces the likelihood of a funding shortfall in the event of severe adverse claims experience.

AM Best assesses KSA’s operating performance as adequate, with a five-year (2021-2025) average return on equity of 1.0%. Investment performance has been serving as a main and stable source of profits, supported by the association’s conservative asset allocation. The investment income partially mitigates earnings volatility attributable to non-insurance businesses operated under non-profit principles, as its primary objective is to support members’ operations. Underwriting profitability has been subdued over the past five years, given the book of business’ inherent volatility associated with the coverage it provides and a small net premium base.

Negative rating actions could occur if there is a significant deterioration in KSA’s balance sheet strength fundamentals driven, for example, by major changes in its risk profile. Negative rating actions also could arise if there is a sustained deterioration in its operating performance to a level that no longer supports the current adequate assessment. Positive rating action could occur if the association demonstrates sustained improvement in its balance sheet strength fundamentals.