HONG KONG--(BUSINESS WIRE)--AM 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, AM Best 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.
AM Best also has revised the outlooks to negative from stable and 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).
The ratings reflect SFM’s balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, very favorable business profile and very strong enterprise risk management (ERM).
SFM’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is at the strongest level, supported by the company’s large absolute capital base, which reached USD 11 billion at the end of 2018; the lowest level of asset and underwriting leverage among its domestic peers; and the company’s prudent investment strategy. The company’s limited exposure to long-tail risks and tight internal capital monitoring practices add stability to its strong capitalization.
Over the past five years, SFM has been profitable; its operating income has been highly stable, and the company has outperformed the industry consistently. The combined ratio has shown very little volatility over the past five years and remained relatively stable in 2018, despite industry-wide deterioration in auto insurance profitability. The company’s stable investment income stream, which is composed mostly of interest and dividend yields, also supports its strong operating performance.
SFM is an undisputed market leader in South Korea’s non-life insurance industry, with strong brand recognition and approximately a 24% share of the market in terms of gross premium written (GPW). The company also has demonstrated its leadership in the auto insurance segment by introducing a highly cost-efficient online channel ahead of its domestic peers. SFM’s large network of exclusive agents gives the company strong control over distribution.
With a group-wide risk management culture that is entrenched in the organization through a robust governance structure, AM Best believes SFM’s risk management capabilities are superior to domestic and international peers with similar business profiles.
Negative rating actions for SFM 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 SVI reflect its balance sheet strength, which AM Best categorizes as strong, as well as its strong operating performance, limited business profile and appropriate ERM. These ratings 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 its conservative investment policy. Due to SVI’s relatively small capital and surplus base of USD 46 million at year-end 2018, along with its high dependency on reinsurance, the company is exposed to potentially high credit risk in post-major loss scenarios. However, this risk is mitigated largely by the company’s well-diversified reinsurance panel, made up mostly of highly rated reinsurers.
The company’s strong operating performance is driven mainly by a low net expense ratio, attributed to low acquisition costs from direct distribution, as well as reinsurance commission income. Loss experience has improved due to lower claim frequency during 2018, with a five-year average loss ratio of less than 30%.
SVI is a non-major player in Vietnam’s non-life insurance segment, with just a 3% share of the market based on GPW in 2018. The company has limited exposure to the local market, as most of its revenue comes from Samsung Group-related business and Korean Interests Abroad (KIA) business, which in total account for more than 90% of its GPW. The company also concentrates on short-tail commercial business lines, but this is limited to property and marine cargo lines, due to its lean business model.
SVI is 75% owned by SFM, shares the Samsung brand name and is highly integrated into its parent company. SFM continually provides support to SVI in major areas such as marketing, actuarial, underwriting and risk management. Furthermore, SVI is important strategically to SFM because it offers coverage to Samsung Group companies and other KIA business in Vietnam, which is a major destination of South Korean investments in Southeast Asia.
While positive rating action is unlikely for SVI over 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 AM 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.
AST’s balance sheet strength is supported by its low net underwriting leverage and conservative investment policy. An offsetting factor of balance sheet strength is its high dependency on reinsurance, which is provided by a reinsurance panel of relatively low credit profile, due to local cession requirements; this potentially exposes the company to high credit risk after major losses. Nonetheless, AM Best considers AST’s available capital to be sufficient to support such risk, as measured by its BCAR stress test.
AST is a joint venture between SFM and PT Asuransi Tugu Pratama Indonesia, Tbk, which have 70% and 30% ownership, respectively. It has a small market share in Indonesia’s non-life insurance market, as the company has a niche business strategy of mostly underwriting Samsung Group and KIA business in Indonesia, while expanding gradually in its domestic market.
The company’s strong operating performance is upheld by favorable underwriting results from this niche business steered by strict underwriting guidelines, coupled with a stable stream of interest income from deposits and government bonds. During 2018, the net investment income and favorable foreign exchange gains offset the underwriting loss attributed to earthquake loss in 2018, and allowed the company to deliver a 7.8% return on equity.
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 directly.
Positive rating action for AST is unlikely over the near term. Negative rating actions could be triggered by a substantial deterioration in the company’s risk-adjusted capitalization, due to material losses; a significant increase in credit risk; or if the company’s operating performance continues to deteriorate.
The ratings of SRE reflect its balance sheet strength, which AM 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 the company receives from its parent, SFM.
The revision of the outlooks to negative reflects the increasing negative trend in SRE’s combined ratio over recent years, with elevated volatility in its underwriting performance while investment performance provides a thin buffer. While the company is implementing various initiatives to lower the volatility and improve profitability, concerns remain over the execution risk from its new business plan.
Operating performance has been mostly profitable over the past five years, with a five-year average operating ratio of 83.9%. However, there was higher volatility in SRE’s underwriting performance over recent years, partially driven by the company’s changing strategies on its retention level in 2017, as well as an increase in large loss cases. Although SRE reported a marginal profit in 2018 after its first-in-history net loss in 2017, its underwriting performance deteriorated again during the first half of 2019. SRE’s plans to grow its treaty and third-party businesses add uncertainties to its operating performance. The current business profile is considered as a relatively profitable captive business to the third-party competitive reinsurance space that the company is entering into. In addition, the net premium base will remain small according to the business plan, and as a result, underwriting performance will remain sensitive to the frequency of medium to large claims without scale.
Nonetheless, SRE’s risk-adjusted capitalization remains solid, supported by a moderate net underwriting leverage. The offsetting factors include a relatively small absolute size of capital and surplus of USD 67 million at year-end 2018, as well as high retrocession dependency. Nevertheless, SFM represents the largest share in SRE’s retrocession program as per its group strategy.
Established in 2011, SRE is a small reinsurer domiciled in Singapore with a focus on Southeast Asia. It has high business concentration in facultative and captive business from the Samsung group. As a wholly owned subsidiary of SFM, SRE shares the Samsung brand and is highly integrated within the parent company. It is strategically important to SFM in its efforts to expand internationally and diversify its business into reinsurance. Given the high level of integration with the group, SRE receives a wide range of support from SFM in areas such as retrocession, actuarial, underwriting, pricing, risk management and technology.
Negative rating actions for SRE could occur if the company’s underwriting performance continues to deteriorate while executing its new business plan. Negative rating actions also could occur if SFM reduces the level of support to SRE, or if SRE’s risk-adjusted capitalization declines sharply due to a material operating loss.
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