Best Revises Samsung Fire Outlook to Positive; Affirms ‘A+’ Ratings

December 28, 2009

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and the issuer credit rating (ICR) of “aa” of South Korea’s Samsung Fire & Marine Insurance Co., Ltd.

The ratings reflect Samsung F&M’s “superior capitalization, consistent operating performance, low volatility in its operations, and solid risk management,” Best explained. “The positive outlook reflects the company’s improved profitability and risk management over the past five years.

Best noted that Samsung F&M has maintained “a superior 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 5,595 billion ($4.7 billion) as of September 2009, as compared to KRW 4.402 billion [$3.76 billion] as of March 2008.

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

In addition Best pointed out that the company’s investment income” increased every year over the past five years in line with the growth of its asset size. The underwriting income showed a remarkable improvement in fiscal years 2007 and 2008, and is expected to be favorable in fiscal year 2009 as well. The company maintains one of the highest profitability levels in the Korean non-life market. For example, the company’s net income and adjusted capital was larger than the rest of the non-life market combined in fiscal year 2008.

“Being the largest player with a market share of 27 percent and an asset size of KRW 25 trillion ($21 billion) as of September 2009, Samsung F&M maintains a lower expense structure as a result of 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 cited the “intensified competition in the Korean non-life market due to the evolution of distribution channels and the continuation of the low interest rate environment,” as offsetting factors.

“Over the last five years, new distribution channels have been introduced into the Korean non-life market, including direct sales, bancassurance, cross-selling between life and non-life companies and the general agency channel,” the report continued. “These fundamental changes in the insurance market have fuelled competition. The industry posted huge underwriting losses from motor business in fiscal year 2005 and 2006 due to the rise of the direct channel in the motor insurance business in addition to other factors. With increased premium being generated from bancassurance and the general agency channel in recent years, profit margins in the long-term insurance business have been under pressure.

“Samsung F&M has not been very active in direct sales, bancassurance and the general agency channel in the past, as these channels do not meet its internal profitability guidelines and incur conflicts between the existing sales channels. But with the sales portion through these channels increasing, Samsung F&M has become somewhat active in direct sales and bancassurance.

As the low interest rate environment continues and with the increasing trend in risk loss ratio in the long term insurance business in recent years, it will be a challenge for Samsung F&M to maintain its profitability in long term insurance business.”

Source: A.M. Best –

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