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 FSRs 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 stable from negative 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 categorises as strongest, as well as its strong operating performance, very favourable business profile and very strong enterprise risk management (ERM).
SFM’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed at the strongest level, underpinned by its substantial capital and surplus of USD 12 billion at year-end 2019. Its robust balance sheet strength is also supported by the company’s low asset and underwriting leverage compared with its domestic peers, as well as highest regulatory risk-based capital ratio within South Korea’s non-life insurance segment.
SFM’s investment strategy is deemed highly conservative; the majority of its investments are allocated in fixed-income assets while the company maintains a relatively small proportion of overseas and alternative investments compared with its peers, which offsets concentration risk from its affiliated stock holdings.
SFM consistently outperforms its domestic peers in underwriting profitability with a superior level of stability. The company’s combined ratio was the lowest in South Korea’s insurance industry for 2019, despite an industry-wide deterioration in underwriting performance during the year. More recently in 2020, SFM reported better underwriting performance, mainly driven by improved profitability in the auto insurance line following a series of rate hikes since 2019, and a reduced car accident rate during the COVID-19 pandemic. Combined with the impact of increased rates in the auto insurance line, AM Best expects this positive underwriting trend to continue into the second half of 2020 amid the current pandemic.
Notwithstanding the increasing pressure on investment yield amid an ultra-low interest rate environment, AM Best expects investment income to maintain a solid base for the company’s overall bottom line given its substantial volume of investment assets.
With a strong brand and a large captive agent distribution network, SFM has maintained its leadership position in South Korea’s non-life insurance segment, accounting for approximately 24% of total industry premiums in 2019. SFM also has a dominant presence in the online auto insurance segment. As the pioneer in South Korea’s online auto insurance business, SFM has a strong competitive advantage, which includes its high quality customer base, a large accumulated database and the scale to maximise cost-efficiency.
SFM has a limited presence in overseas markets, but its global expansion strategy marked a notable advancement in 2019 as the company acquired a significant minority stake in Canopius Group Limited (Canopius), a participant in the Lloyd’s market. SFM is actively seeking global business opportunities in collaboration with Canopius.
With a group risk management culture entrenched in the organisation and a robust governance structure, SFM’s risk management capabilities are superior to its domestic and international peers with similar business profiles.
Negative rating actions could occur if there is consistent deterioration in SFM’s operating performance or a material decrease in its capitalisation.
The ratings of SVI’s reflect its balance sheet strength, which AM Best categorises as strong, as well as its strong operating performance, limited business profile and appropriate ERM. These ratings also recognise the wide range of implicit and explicit support provided by SFM.
SVI’s balance sheet strength is underpinned by its very low net underwriting leverage and solid capital growth from its strong earnings. Negative balance sheet strength factors include SVI’s relatively small capital base of USD 49 million at year-end 2019 and its high dependency on reinsurance. Reinsurance credit risk is partially offset by the company’s well-diversified reinsurance panel with good credit profiles, including SFM.
SVI has a track record of strong operating performance with a five-year average return-on-equity (ROE) of 15% (2015-2019) and a combined ratio of -89.3%. Notwithstanding a one-time large loss event in 2019, its combined ratio remained favourable at -43.8%. The strong underwriting performance was driven mainly by reinsurance commission income, and reflects SVI’s fronting insurance business model. A solid stream of interest income provides additional stability to SVI’s overall bottom line.
SVI has an approximately 2% share of Vietnam’s non-life insurance market, based on gross premium written (GPW) in 2019. The company has limited exposure to its domestic market, with most of its revenue being generated by Samsung group-related business and Korean Interests Abroad (KIA) business, which collectively represents more than 90% of GPW. The company also has product concentration as the property and marine cargo lines together make up more than 90% of its premium income.
AM Best views SVI’s risk management system, which is part of a global governance system developed by SFM, as well-developed and in line with the parent’s risk framework and appetite.
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 strategically important to SFM because it offers coverage to Samsung group companies and other KIA business in Vietnam, a major target country of Korean investments.
Although positive rating action is unlikely for SVI in the near term, negative rating actions could arise from a substantial decrease in the company’s risk-adjusted capitalisation due to a deterioration in operating results or a surge in credit risk. Negative rating actions may also arise if support from SFM is reduced to an extent that no longer supports the current level of enhancement.
The ratings of AST reflect its balance sheet strength, which AM Best categorises as strong, as well as its strong operating performance, limited business profile and appropriate ERM. These ratings also recognise the wide range of implicit and explicit support provided by SFM.
AST’s risk-adjusted capitalisation, as measured by BCAR, is assessed at the strongest level, supported by its low net underwriting leverage, which partially offsets its small capital base of USD 21 million at year-end 2019. The company’s investment strategy is highly conservative as most of its investments are allocated in time deposits and Indonesian government bonds, which provide sufficient liquidity. Negative rating factors include its relatively high credit risk exposure, derived from its large panel of domestic reinsurers as mandated by local regulations. Nonetheless, results from AM Best’s stress test indicate that the company’s capitalisation level is sufficient to withstand such risk.
AST has a track record of strong operating performance, supported by profitable underwriting and investment activities, as demonstrated by its five-year average combined ratio of 68.9% (2015-2019) and an ROE of 13.1%, as calculated by AM Best, although the company’s ROE is slightly volatile. Its solid profitability is largely driven by a low net expense ratio, attributed to low acquisition costs from its direct distribution channel, as well as reinsurance commission income.
AST is a joint venture between SFM and PT Asuransi Tugu Pratama Indonesia, Tbk, which own 70% and 30% of the company, respectively. AST holds less than a 1% market share in Indonesia’s non-life insurance segment, based on gross premium written (GPW) in 2019. While the company plans to expand inward domestic business, its exposure to Indonesia’s market remains limited; the majority of its revenue comes from Samsung group-related business and KIA business, which collectively accounted for more than 60% of GPW in 2019.
AST shares the Samsung brand and is highly integrated into its parent, receiving support in various areas including marketing, pricing, underwriting and risk management. Most of AST’s business is related to SFM’s business relationships. The company also receives direct reinsurance support from SFM.
Although positive rating action is unlikely for AST over the near term, negative rating actions could arise from a substantial deterioration in the company’s risk-adjusted capitalisation or operating performance.
Negative rating actions may also occur if support from SFM is reduced to an extent that no longer supports the current level of enhancement.
The ratings of SRE reflect its balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate ERM. These ratings also recognise the high degree of integration and wide range of implicit and explicit support the company receives from SFM.
The revision of the outlooks to stable reflects SRE’s improved underwriting profitability and stability in 2019 and the first half of 2020, supported in part by increased net premium bases driven by a higher retention policy, and reduced loss claims given stricter underwriting discipline for third party business.
SRE’s swift response to mitigate its climbing combined ratio and volatile underwriting performance due to a change in retention strategy resulted in material improvement to its underwriting performance since its last AM Best rating review. SRE’s adequate operating performance is supported by a five-year average return on equity of 3.8% (2015-2019) and combined ratio of 94%, mainly attributed to highly profitable captive business from the Samsung group. The company introduced additional remedial measures in 2020 – such as tightening its underwriting guidelines and increasing its retention of highly stable captive business – which are expected to further stabilise its performance. SRE aims to expand into the third-party treaty business gradually, and is following strict underwriting discipline from SFM. All these considerations give AM Best greater confidence over the company’s capability to manage its operating performance at an adequate level over the medium term.
SRE’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level. Although its capital and surplus has shown a stable growth trend with full profit retention in past years, the company’s absolute capital base remains small for a reinsurer. Its high retrocession dependency is largely offset by the strong credit profile of its parent, SFM, who undertakes the largest share in SRE’s retrocession programme as per its group strategy.
SRE is a reinsurer domiciled in Singapore with a GPW base of USD 96 million in 2019. In terms of geography, SRE is largely focused on Southeast Asia and India, and has high business concentration in facultative and captive businesses from the Samsung group. While the company is gradually increasing its third-party exposure, AM Best notes that the captive business will remain a key contributor to SRE’s profits over the medium term.
As a wholly owned subsidiary of SFM and the only reinsurer within the group, SRE shares the Samsung brand and is strategically important to SFM as an integral part of its global expansion and business diversification 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 there is a deterioration in the company’s operating performance due to a sustained unfavourable trend in underwriting performance. Negative rating actions also could occur if SRE’s risk-adjusted capitalisation declines significantly due to a material operating loss, or if SFM reduces the level of support to SRE to an extent that no longer supports the current level of rating enhancement.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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