A.M. Best Upgrades Ratings of Samsung Fire & Marine Insurance Co., Ltd.

A.M. Best Co. has upgraded the financial strength rating to A++ (Superior) from A+ (Superior) and the issuer credit rating to “aa+” from “aa” of Samsung Fire & Marine Insurance Co., Ltd. (Samsung F&M) (South Korea). The outlook for both ratings has been revised to stable from positive.

The ratings reflect Samsung F&M’s superior capitalization and sound operating performance and its prudent stance on investment, reserving and reinsurance programs.

Samsung F&M has maintained a stable and superior capitalization over the past five years. With a premium market share of 27%, the company’s capital and surplus amounted to KRW 6.8 trillion (USD 5.8 billion) in September 2011, which is greater than the rest of all the non-life insurance companies combined in Korea, which was KRW 6.7 trillion (USD 5.7 billion). Samsung F&M's local solvency (risk-based capital) ratio as of September 2011 was 454%, compared to an industry average (excluding Samsung F&M) of around 200%.

Samsung F&M’s profitability is strong with limited volatility. The global financial crisis had little impact on the company, and the investment income was KRW 1.2 trillion (USD 1.1 billion) in fiscal year 2010, with a net income of KRW 665 billion (USD 564 million). The company’s operating ratio (combined ratio minus investment income ratio) moved within a very limited band ranging from 90% to 92% over the last five years.

In Korea, the motor insurance market has been competitive, with a combined ratio higher than 100% over the past five years. In fact, the industry motor combined ratio reached 111% in fiscal year 2010, whereas that of Samsung F&M was 107%. In recent years, Samsung F&M has created a loss ratio advantage of 3%-4% over the market. The motor loss ratio peaked in fiscal year 2010 and is showing improvement in fiscal year 2011, with Samsung F&M recording a combined ratio of 99% as of September 2011.

Samsung F&M has embarked on an overseas expansion plan whereby it plans to increase the revenue from its overseas market. Currently, the premium generated outside Korea represents 2% of its total revenue. The company has a long term vision to increase this revenue source to 18% over the next decade.

Partially offsetting these positive rating factors are the high competition in the industry and the low interest rate environment.

Despite Samsung F&M’s advantage in traditional distribution channels, the company faces intense price competition in the emerging distribution channels.

As the low interest rate environment continues, the funding cost of the long-term fixed interest rate policies can put pressure on the company’s profitability. However, policies with higher interest rates sold in the past are slowly maturing, and the overall assumed interest rate is decreasing.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Understanding Universal BCAR”; “Assessing Country Risk”; “Natural Catastrophe Stress Test Methodology”; and “Risk Management and the Rating Process for Insurance Companies.” Methodologies can be found at http://www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.