Looking for ratings
The cloud of uncertainly surrounding the ability of a Korean insurer to cover large damage claims if a hurricane were to hit the islands seemed to deepen last week as the company notified its local agents that the Hawai’i office lacks a rating from A.M Best, an international rating service relied on to compare the safety and security of insurance carriers. The problems were described in Honolulu Weekly last week (’Big hurricane, big problem,’ Aug. 29).
The notice came in an Aug. 27 letter from Hoe Min Rim, Dongbu Insurance Company’s general manager in Hawai’i, to the three local insurance agencies selling its policies.
Atlas Insurance Agency, one of the agencies marketing Dongbu’s hurricane coverage to condominiums, in turn told its clients that even Insurance Commissioner J.P. Schmidt failed to realize that a local affiliate of a foreign insurer has to be rated separately from its parent company because state law doesn’t allow going after foreign assets in case of financial problems.
Dongbu is currently seeking a separate rating for its Hawai’i affiliate, according to the letter. To quell concerns about its financial reserves, the company also produced what it described as ‘a Letter of Guarantee’ from its parent company ‘which shows our head office’s full legal liability for the operations in the State of Hawai’i.’
But it remains unclear whether that letter, addressed to Schmidt, would be considered binding on the foreign company through layers of national and international law.
Dongbu also sought to reassure Hawai’i customers by referring to a recent rating of BBB+ assigned by Standard & Poor, but another rating agency, Weiss Ratings, currently lists Dongbu’s Hawai’i affiliate among a small group of homeowners and auto insurers receiving its lowest rating of ‘extremely weak’ (see [weissratings.com]).
This could signal problems ahead for condominium associations that may be violating their own governing documents, which often require insurance coverage to be acquired from rated companies. The problem could eventually hit individual owners and prospective buyers if banks shy away from existing or new financing because a condominium’s insurance carrier does not meet a specific minimum rating, according to a memo circulating at Insurance Associations, a competing agency, which has raised the issue in a complaint filed with the Insurance Commissioner.
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