HONG KONG–(BUSINESS WIRE)–#insurance—AM Best has affirmed the Financial Strength Rating (FSR) of A++ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa+” (Superior) of Samsung Fire & Marine Insurance Co., Ltd. (SFM) (South Korea) and its subsidiaries, Samsung Fire & Marine Insurance Company of Europe Limited (United Kingdom), Samsung Vina Insurance Co., Ltd. (Vietnam), and Samsung Reinsurance Pte. Ltd. (Singapore). In addition, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of PT Asuransi Samsung Tugu (AST) (Indonesia). The outlook of these Credit Ratings (ratings) is stable.
The ratings of SFM reflect its balance sheet strength, which AM Best assesses 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 is expected to remain comfortably at the strongest level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR), supported by its robust absolute capital base of KRW 11 trillion (USD 8.7 billion) as at year-end 2022. The company’s capital is exposed to certain volatility arising from the impact of interest rate movements on the valuation of fixed-income securities and the changes in market value of affiliated stock holdings. Nonetheless, its risk-adjusted capitalisation demonstrated resilience to various capital market stress testing scenarios. SFM’s balance sheet strength also is supported by its debt-free position, the lowest level of underwriting leverage and the highest regulatory solvency ratio in South Korea’s non-life segment, and conservative investment strategy.
SFM has a long-term track record of strong operating performance supported by highly stable underwriting performance with a low level of combined ratio compared with its peers and robust investment profits. The company’s net income increased in 2022, primarily due to an improvement in its largest business line, long-term insurance, as a result of alleviated pressure on medical indemnity profitability and enhanced persistency ratios. SFM’s long-term line loss ratio (excluding the impact of savings components) continues to outperform its domestic peers. The company’s investment profits remain robust, underpinned by large investment asset base that supports the operating performance as a major source of income.
SFM is the market leader in South Korea’s non-life segment with approximately 22% market share in terms of gross premiums written in 2022 and has superior brand power being a part of the wider Samsung Group. The company has strong control over its distribution through a large network of tied agents for its long-term insurance and via its market-leading online channel for auto insurance segment. In particular, SFM demonstrates strong leadership in the rapidly growing online auto insurance line with a high-quality customer base and an immense amount of data and knowledge it has accumulated as the pioneer in this area. The company also benefits from its affiliation with Samsung Group by underwriting group-related business in South Korea and overseas, which serves as a good source of profit in its general insurance line with very favourable loss ratios.
Notwithstanding its limited footprint in overseas market, SFM has been pursuing global expansion cautiously through inorganic growth and partnerships over the past few years. SFM’s recent ventures include an investment in Canopius Group Limited and its business partnership in the U.S. market, as well as a change of SFM’s China subsidiary into a joint venture with Tencent Holdings Limited to tap into online personal lines segment in China more effectively.
With sophisticated risk management culture and framework that are entrenched in the organisation, SFM’s risk management capabilities are superior to those of its domestic and international peers with similar risk profiles.
Negative rating actions could occur if there is a continuous deteriorating trend in SFM’s operating performance to a level that no longer supports the current strong assessment. Negative rating actions also could arise if there is a significant deterioration in its risk-adjusted capitalisation. While it is thought to be unlikely, positive rating actions could occur if SFM’s operating performance demonstrates exceptionally strong and consistent results.
The ratings of AST reflect its balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and appropriate ERM. The ratings also recognise the wide range of support provided by AST’s parent, SFM.
AST’s risk-adjusted capitalisation is assessed at the strongest level, as measured by BCAR, supported by its strong internal capital generation, low net underwriting leverage and highly conservative investment portfolio. Given its sizeable reinsurance exposure to domestic insurers under regulatory requirements, the company has moderately high counterparty credit risk, which is mitigated partially by affiliated and international reinsurance partners of high credit quality and SFM’s strict reinsurance counterparty monitoring.
AST’s operating performance is supported by its strong underwriting profitability and stable investment profits as demonstrated by a five-year average combined ratio of 57% (2018-2022) and a return-on-equity ratio of 9.9%. The company’s underwriting performance is driven mainly by its low expense ratio, which is attributed to large reinsurance commission income and low acquisition costs from the direct distribution channel. The company also benefits from relatively favourable loss ratios of Samsung group risks and the Korean Interests Abroad business compared with domestic Indonesia business.
Despite the inherent volatility in profitability due to the small net premium base, AM Best expects that AST’s strong underwriting profitability will remain supported by large commission income from increasing new Korean investments in Indonesia and its conservative underwriting for domestic Indonesia businesses.
AST is a joint venture between SFM and PT Asuransi Tugu Pratama Indonesia Tbk, which have 70% and 30% shareholding, respectively. AST mainly focuses on underwriting risks related to Samsung group affiliates and other Korean companies in Indonesia, which AM Best expects to remain largely unchanged over the medium term. AST’s exposure to the Indonesian market remains small given its limited domestic market access as a foreign player and SFM’s strict underwriting guidelines. The company shares the Samsung brand and is highly integrated into its parent, receiving support in various areas including key personnel, underwriting, pricing, marketing, risk management and information technology.
Negative rating actions could occur for AST if support from SFM is reduced to an extent that no longer supports the current level of rating enhancement. Negative rating actions also could occur if there is a sustained deterioration in AST’s operating performance, or its risk-adjusted capitalisation significantly deteriorates such as from heightened credit risk following major loss events due to its high reinsurance dependency. Positive rating actions could arise if there is a notable and sustained expansion of the company’s market presence leading to improved business profile.
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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