Overview

• On Nov. 15, 2023, we published our revised criteria for analyzing insurers' risk-based capital (see "Insurer Risk-Based Capital Adequacy--Methodology And Assumptions.")
• The implementation of the revised capital model criteria has a positive impact on our view of DB Insurance Co. Ltd.'s (DBI) capital adequacy.
• Therefore, we raised our long-term financial strength and issuer credit ratings on Korea-based DBI to 'A+' from 'A'.
• The stable rating outlook reflects our view that DBI will maintain its very strong competitive position in Korea's insurance market and strong capitalization over the next two years.

Rating Action

On Feb. 28, 2024, S&P Global Ratings raised its long-term financial strength and issuer credit ratings on DBI to 'A+' from 'A'. The outlook on the ratings is stable.

Impact Of Revised Capital Model Criteria

• The improvement in capital adequacy primarily reflects an increase in total adjusted capital (TAC) owing to full inclusion of value-in-force (VIF).
• We have also captured the benefits of risk diversification more explicitly in our analysis, which supports improvement in capital adequacy.
• The recalibration of our capital charges to higher confidence levels, revised approach on interest rate risk charges, and risk charge on VIF partially offsets these improvements.

Credit Highlights

Outlook

The stable outlook reflects our view that DBI will maintain its very strong competitive position in Korea's insurance market and strong capitalization over the next two years. We believe DBI's prudent underwriting philosophy, focus on protection-type products, and an investment strategy that prioritizes long-term, high-quality bonds will support its capitalization.

Downside scenario

We may lower the rating if DBI's consolidated capital position, which includes DB Life Insurance Co. Ltd., deteriorates significantly. This could result from an aggressive investment strategy for loans or securities with alternative investment features, substantially weakened underwriting performance, or heightened capital volatility amid interest rate movements when asset liability duration is not managed well.

Upside scenario

We view an upgrade as remote over the next two years. However, we may raise the ratings on DBI if the insurer:

• Sustainably delivers strong profitability with a prudent investment strategy that significantly improves its capital buffers; and
• Achieves a stronger competitive position, for example, by growing its overseas presence with sustainable profitability comparable to 'AA-' rated peers.

Rationale

The upgrade reflects our view that DBI's capital adequacy has strengthened and will remain strong over the next two years. The revised capital model criteria had a positive impact on our assessment of DBI's capital and earnings. This is mainly due to a stronger TAC base from the 100% inclusion of VIF and higher benefits of risk diversification under our revised criteria.

We believe DBI will maintain strong capital adequacy to support moderate business growth over the next two years. The insurer has stable internal capital generation thanks to the relatively high profitability on its property and casualty (P/C) insurance operations when compared with the domestic industry average. We attribute this to DBI's adequate underwriting strategy and strong distribution channels with good operating efficiency.

The insurer will likely grow its net premiums written by about 6% annually over the next two years, focusing on high-margin, long-term protection-type policies.

We expect DBI can manage capital sensitivity to interest rate movements. The insurer's focus on long-term, high-quality bonds to manage the duration mismatch of its assets and liabilities supports our view. Following DBI's adoption of Korean International Financial Reporting Standards (K-IFRS) 17, from Jan. 1, 2023, insurance liabilities reflect market-consistent interest rates.

DBI has adequate risk control to mitigate potential investment volatility. The insurer has a diversified investment portfolio and a good track record of managing stable asset quality. This is despite its sizable exposure to loans (excluding policyholder loans) and securities with alternative investment features. These accounted for about 48% of total invested assets, as of end-September 2023.

DBI will maintain its very strong business presence in Korea's P/C insurance market. The insurer's well-established franchise and extensive controlled distribution network underpin its business competitiveness. It has a diverse business portfolio across long-term health and savings, auto, and commercial lines. We forecast DBI's return on average assets to improve to 2.2%-2.3% in 2024-2025, compared with the past three-year average of about 1.9%.

DBI's overseas expansion will be gradual, in our view. DBI's geographic footprint is relatively limited than that of global peers, with overseas business accounting for about 4% of its consolidated GPW in the first nine months of 2023.

Ratings Score Snapshot

Related Criteria

• Criteria | Insurance | General: Insurer Risk-Based Capital Adequacy--Methodology And Assumptions, Nov. 15, 2023
• General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
• General Criteria: Group Rating Methodology, July 1, 2019
• Criteria | Insurance | General: Insurers Rating Methodology, July 1, 2019
• General Criteria: Principles Of Credit Ratings, Feb. 16, 2011

Related Research

• Insurance Industry And Country Risk Assessment: Korea Property/Casualty, Dec. 19, 2023
• Insurance Industry And Country Risk Assessment: Korea Life, Dec. 19, 2023
• Certain Issuer And Issue Ratings Placed Under Criteria Observation After Insurance Capital Model Criteria Update, Nov. 16, 2023
• DB Insurance Co. Ltd., Nov. 13, 2023
• Korea (the Republic of), Oct. 30, 2023
• Korean Insurers And IFRS 17: Jury's Out If Increased Capital Is Here To Stay, Sept. 22, 2023

Ratings List