Korean Re faces downgrade risk amid shifting market dynamics

S&P hints at better assessments if Korean Re sustains strong performance and market leadership.

Despite volatility in capital and earnings due to alternative investments and natural catastrophes, Korean Re maintains a moderately high-risk profile. Its diverse portfolio and gradual international expansion support its competitive strength, but challenges may arise from higher reinsurance utilization and potential retrocession cost increases.

Albeit, S&P Global Ratings upgraded its outlook for Korean Reinsurance Co. (Korean Re) and its subsidiary Korean Reinsurance Switzerland AG (KRSA) to positive from stable last 28 February.

This upgrade reflects the enhanced capital adequacy of Korean Re, driven by a new capital model that better captures risk diversification. 

Additionally, the adoption of K-IFRS 17 from 1 Jan., provides greater clarity on future profits, although this is partially offset by higher catastrophe risk charges and adjusted interest rate risk charges.

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Looking ahead, there's a possibility of further rating upgrades over the next 12-18 months if Korean Re maintains strong capital adequacy, stable operating performance, and its leading position in the domestic reinsurance market while expanding internationally.

In a positive scenario, ratings could rise if Korean Re demonstrates sustained capital adequacy and stable operating performance. 

Conversely, a downgrade could occur if capital adequacy weakens, operating performance deteriorates, or the company's position in the domestic market weakens significantly.

The revision in outlook reflects the potential for upgrades if Korean Re maintains its strengthened capital buffer. The new capital model criteria, which no longer apply haircuts to certain reserves, have improved the view on Korean Re's capital adequacy.