Best Affirms Samsung F&M ‘A+’ Ratings

January 15, 2009

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa” of South Korea’s Samsung Fire & Marine Insurance Co., Ltd. (Samsung F&M), with stable outlooks

“The ratings reflect Samsung F&M’s strong and stable risk-adjusted capitalization, profit oriented strategy, solid risk management and experienced management,” said Best. “Samsung F&M has maintained a strong capital position over the past five years. The company’s adjusted capital and surplus (sum of capital and surplus and catastrophe reserves) stood at KRW 4,402 billion (USD 4.4 billion) as of fiscal year 2007, as compared to KRW 4,138 billion (USD 4.1 billion) as of fiscal year 2006.

“The company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), has been maintained at a superior level over the last five years. Due to its conservative and sound investment portfolio, Samsung F&M’s risk-based capitalization showed a low volatility over the last five years as well.”

Best also indicated that the “recent credit crisis and economic slowdown had little impact on its capitalization,” and Best said it “expects that it will be maintained at a high level for the next three years.

“The company’s investment income grew in line with its asset size over the past five years, and the underwriting income showed a remarkable improvement in fiscal years 2007 and 2008. The company maintains one of the highest profitability levels in the Korean non-life market. Being the largest player with a market share of 29 percent and an asset size of KRW 21 trillion (USD 21 billion) as of fiscal year 2007, Samsung F&M maintains a lower expense structure due to economies of scale and higher stability in profits due to its sound risk management practice. The company has been proactive in developing a risk management culture and system and deploying it in every aspect of its business.”

However, best also noted that “partially offsetting these positive rating factors are the intensified competition in the Korean non-life market and the expected economic slowdown in Korea.

“Over the last five years, new distribution channels have been introduced into the Korean non-life market including direct sales, bancassurance and cross-selling between life and non-life companies. This fundamental change in the insurance market has fuelled competition in the market.”

In addition Best said: “Samsung F&M has not been very active in direct sales and bancassurance in the past as these channels do not meet its profitability guidelines and incur conflicts between the existing sales channels. As the sales portion through direct sales within motor insurance has reached 16 percent and bancassurance sales volume has reached KRW 2 trillion (USD 2 billion) as of fiscal year 2007, Samsung F&M plans to change its strategy to be more active in these channels going forward.

“The Korean economy and the non-life market are both expected to slow down, and as investment yield is expected to decrease as well due to lower interest rates, companies will face increased pressure from cost increases. Companies with a high cost structure will face challenges to generate profit, and companies with a low cost structure, like Samsung F&M, will likely widen their lead in the market. However, it will remain a challenge for Samsung F&M to maintain its current profitability level.”

Source: A.M. Best –

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