AM Best forecasts stable medium-term growth for Meritz Insurance

The assessment mirrors Meritz's robust balance sheet strength,

Meritz Fire & Marine Insurance Co.’s current business mix is to remain largely unchanged in the medium term. The general agency channel remains a significant distribution channel and has been a key driver of the company's growth in previous years, AM Best said.

As the fifth-largest non-life insurer in South Korea, Meritz holds a growing market share of 11.5% in 2022 in terms of gross premiums written (GPW). The company strategically concentrates on long-term insurance, constituting about 85% of its 2022 GPW, while the auto and general segments make up the remainder. 

The assessment mirrors Meritz's robust balance sheet strength, evaluated by AM Best as strong, along with its strong operating performance, neutral business profile, and appropriate enterprise risk management.

Meritz's balance sheet strength is well-supported by its risk-adjusted capitalization, assessed at a very strong level using Best's Capital Adequacy Ratio (BCAR). The company exhibits good financial flexibility, demonstrated by multiple capital injections from its parent, Meritz Financial Group Inc. (MFG), and successful issuances of hybrid/subordinated bonds in previous years. 

Although there is a possibility of increased dividends under the new group structure, AM Best anticipates that Meritz's robust earnings will continue to uphold its risk-adjusted capitalisation in the medium term. 

While the company is significantly exposed to real estate-related loans, it employs appropriate risk management practices. However, careful monitoring is essential to address potential increases in asset risk, particularly given recent uncertainties in domestic and global real estate markets.

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Meritz's operating performance thrives on consistently strong investment returns and a relatively low loss ratio compared to domestic peers. The overall loss ratio witnessed a decline in 2022 due to improvements in the long-term insurance line, stemming from an expanded premium base and various measures to stabilise medical claims. 

Despite a post-pandemic rebound in medical claims in 2023, the long-term line's overall profitability is expected to be maintained through Meritz's ongoing efforts to enhance underwriting and claims management and expand into high-margin policies. 

The company's historically strong investment income, primarily driven by competitive returns from real estate-related loans, continues to be a major earnings source, with a five-year average net investment return (including capital gains/losses) of 4.7% (2018-2022).

Negative rating actions could occur with a substantial deterioration in Meritz's risk-adjusted capitalization, such as insufficient capital growth to support business expansion, an increase in investment asset risk, or an excessive dividend policy that no longer aligns with the current balance sheet strength assessment. 

Additionally, a material decline in the credit profile of its parent, MFG, may negatively impact the company's ratings. Positive rating action could materialise if the company demonstrates sustained improvement in its balance sheet fundamentals.