A.M. Best Affirms Credit Ratings of Samsung Fire & Marine Insurance Co., Ltd. and Its Subsidiaries
HONG KONG--(BUSINESS WIRE)--Sep 21, 2018--A.M. Best has affirmed the Financial Strength Rating (FSR) of A++ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “aa+” of Samsung Fire & Marine Insurance Co., Ltd. (SFM) (South Korea). Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” of SFM’s wholly owned subsidiary, Samsung Reinsurance Pte. Ltd. (SRE) (Singapore). A.M. Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of SFM’s subsidiaries, Samsung Vina Insurance Co., Ltd. (SVI) (Vietnam) and PT. Asuransi Samsung Tugu (AST) (Indonesia). The outlook of these Credit Ratings (ratings) is stable.
The ratings of SFM reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, very favorable business profile and very strong enterprise risk management (ERM).
SFM’s balance sheet strength is underpinned by its risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s large absolute capital base, low level of underwriting leverage and its prudent investment strategy also support its robust capitalization. The company’s limited exposure to long-tail risks and tight internal capital monitoring practices add stability to its strong capitalization.
SFM has maintained highly stable and profitable operating income. Although the gap with its peers has narrowed due to industry-wide efforts to improve profitability, SFM has outperformed the industry in operating profitability consistently over the past five years while demonstrating highly stable underwriting profitability. The company’s stable investment income stream, which is composed mostly of interest and dividend income, supports its strong operating performance.
SFM is an indisputable market leader in South Korea’s non-life insurance industry with approximately a quarter of the market share in terms of direct premium written. SFM’s large network of exclusive agents gives the company strong control over distribution. The company also has demonstrated its leading role in auto insurance by introducing a highly cost-efficient online channel ahead of other domestic peers. Despite its limited operation in overseas markets, concentration risk is low given the large size of its domestic market with stable growth and the company’s diversified product mix.
A.M. Best believes SFM has a sophisticated ERM structure with a company-wide risk management process and culture that are entrenched in the organization, in addition to superior risk management capabilities to effectively manage its diverse risk exposures.
Negative rating actions could occur if there is consistent deterioration in the company’s operating performance or a material decrease in the company’s capitalization.
The ratings of SRE reflect its balance sheet strength, which A.M. Best categorizes as strong, as well as its adequate operating performance, limited business profile and appropriate ERM. These ratings also recognize the high degree of integration and wide range of implicit and explicit support provided by the SRE’s ultimate parent, SFM.
SRE’s risk-adjusted capitalization, as measured by the BCAR, is at the strongest level due to a low net underwriting leverage and conservative investment portfolio. Nevertheless, SRE’s capital and surplus size of USD 66 million at the end of 2017 is small for a reinsurer and it also has a high dependency on retrocession.
Operating performance has been mostly profitable over the past five years, with a five-year average operating ratio of 86.0%. Profitability is supported mainly by underwriting results, as net investment return is low due to the company’s conservative investment policy. Volatility in operating performance is high due the impact of relatively large losses to a small net premium size. Nevertheless, the new management team implemented measures to address volatility, including changes in its business plan to re-enter the treaty market and increase its retention level to lower the expense ratio.
SRE is a small regional reinsurer mainly focused in Southeast Asia. As most of its book of business was assumed from SFM when it commenced business in 2012, SRE benefits from low execution risk and a relatively profitable business related to Samsung Group companies and Korean Interests Abroad (KIA) in Southeast Asia.
As a wholly owned subsidiary of SFM, SRE shares the Samsung brand and is highly integrated within the parent company. This is strategically important to SFM in its effort to expand internationally. SFM provides a wide range of support to SRE in underwriting, pricing, marketing, actuarial, risk management and retrocession.
While positive rating actions are unlikely for SRE, negative rating actions could occur if the underwriting performance continues to be unfavorable due to failure in the new business plan execution. Negative rating actions also could occur if SFM reduces the level of support to SRE or SRE’s risk-adjusted capitalization declines sharply due to a material operating loss.
The ratings of SVI reflect its balance sheet strength, which A.M. Best categorizes as strong, as well as its strong operating performance, limited business profile and appropriate ERM. These ratings also recognize the wide range of implicit and explicit support provided by the company’s ultimate parent, SFM.
Balance sheet strength is supported by SVI’s very low net underwriting leverage and conservative investment policy. Nevertheless, SVI has a relatively small capital and surplus, at USD 42 million at the end of 2017, and is highly dependent on reinsurance. The company’s reinsurance panel is well-diversified, mostly with highly rated reinsurers.
SVI is not a major player in Vietnam’s non-life insurance market, with about a 3% market share in 2017, and mostly underwrites Samsung Group-related business, which accounts for two-thirds of its gross written premium. Due to its limited business scope, the company has high concentration in business lines, particularly in marine and property, and in large South Korean accounts.
The strong operating performance is supported mainly by reinsurance commission income, reflecting SVI’s fronting insurance business model. SVI receives a large amount of reinsurance commission, as it cedes most of its premium and has a favorable loss experience.
SVI is 75% owned by SFM, shares the Samsung brand and is highly integrated into its parent company. The company receives supports in areas such as marketing, pricing, actuarial, underwriting, risk management and reinsurance. SVI is strategically important to SFM because it offers coverage to Samsung Group companies and other KIA in Vietnam, a major destination of South Korean investments in Southeast Asia.
While positive rating action is unlikely for SVI in the near term, negative rating actions could be triggered by a substantial deterioration in the company’s risk-adjusted capitalization.
The ratings of AST reflect its balance sheet strength, which A.M. Best categorizes as strong, as well as its strong operating performance, limited business profile and appropriate ERM. These ratings also recognize the wide range of implicit support provided by the company’s ultimate parent, SFM.
Balance sheet strength is supported by AST’s low net underwriting leverage and conservative investment policy. Nevertheless, AST’s capital remains small at USD 18 million at year-end 2017. Reinsurance dependence is high and, due to a local cession requirement, exposes the company to significant credit risk.
AST is a joint venture between SFM and PT Asuransi Tugu Pratama Indonesia, Tbk, which have 70% and 30% ownership, respectively. It is a small player in Indonesia’s non-life insurance market and mostly underwrites niche businesses of Samsung Group and other KIA in Indonesia.
The strong operating performance is supported by favorable underwriting results from this niche business coupled with strict underwriting guidelines. Investment income, mostly from interest on deposits and government bonds, also has supported the company’s results.
AST shares the Samsung brand and is highly integrated into SFM, receiving support in marketing, pricing, underwriting and risk management. Most of AST’s business is related to SFM’s business relationships. AST also receives reinsurance support from SFM through its sister company, SRE.
Positive rating action for AST is unlikely at this time. Negative rating actions could be triggered by a substantial deterioration in the company’s risk-adjusted capitalization, due to material losses or a significant increase in credit risk.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s web page. For additional information regarding the use and limitations of Credit Rating opinions, please view . For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view .
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CONTACT: A.M. Best
Sergio Hidenori Agena
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KEYWORD: EUROPE ASIA PACIFIC SINGAPORE HONG KONG
INDUSTRY KEYWORD: PROFESSIONAL SERVICES FINANCE INSURANCE
SOURCE: A.M. Best
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PUB: 09/21/2018 12:20 PM/DISC: 09/21/2018 12:20 PM