AM Best Affirms Credit Ratings of Samsung Fire & Marine Insurance Co., Ltd. and Its Subsidiaries; Revises Outlooks to Negative for Samsung Reinsurance Pte. Ltd.
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,
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
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
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
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
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
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
Established in 2011, SRE is a small reinsurer domiciled in
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.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency and information provider with an exclusive focus on the insurance industry. Visit www.ambest.com for more information.
Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
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Source: AM Best
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