AM Best Affirms Credit Ratings of Samsung Fire & Marine Insurance Co., Ltd. and Its Subsidiaries

HONG KONG–(BUSINESS WIRE)–#insurance—AM Best has affirmed the Financial Strength Rating (FSR) of A++ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of �aa+” (Superior) of Samsung Fire & Marine Insurance Co., Ltd. (SFM) (South Korea). AM Best also has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” (Excellent) of SFM’s wholly owned subsidiary, Samsung Reinsurance Pte. Ltd. (SRE) (Singapore). AM Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of PT Asuransi Samsung Tugu (AST) (Indonesia). Finally, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of Samsung Vina Insurance Co., Ltd. (SVI) (Vietnam). 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 assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), supported by its substantial absolute capital and surplus that totaled KRW 16 trillion (USD 15 billion) as at year-end 2020 on the back of strong earnings and accumulated other comprehensive income. SFM’s balance sheet strength is also supported by its low asset and underwriting leverage ratios compared with its domestic peers; the highest regulatory solvency ratio in South Korea’s non-life segment; and its debt-free position. Its asset allocation is highly conservative, with a majority of investments in fixed-income assets while maintaining a relatively small proportion of overseas and alternative investments compared with peers, which offsets concentration risk from affiliated stock holdings.

SFM’s strong operating performance is underpinned by its large absolute net income stream that is supported by robust investment profits, outstanding and stable underwriting performance, and the lowest combined ratio among its domestic peers. After a deterioration in 2019 with an industry-wide rise in auto and medical claims, SFM’s underwriting performance improved in 2020 and the first half of 2021, mainly driven by favourable auto line performance following a series of rate increases and reduced claims frequency amid the COVID-19 pandemic. Investment profits continue to be robust, supported by substantial volume of investment assets.

As the leader in South Korea’s non-life insurance segment with a market share of approximately 23% in terms of gross premium written (GPW) in 2020, SFM has superior brand power and a large captive agent distribution network, as well as highly diversified product offerings. SFM demonstrates especially strong leadership in the rapidly growing online auto insurance line with a high-quality customer base and an immense amount of data and knowledge that it has accumulated as the pioneer in this area. AM Best also notes that the Samsung Group’s related business in South Korea and overseas serves as a good profit source to SFM with very favourable loss ratios.

Notwithstanding its limited presence in overseas markets, the company has been cautiously pursuing global expansion through inorganic growth and partnership; SFM’s most recent ventures include its investment in Canopius Group Limited and an initiative to turn its China operation into a joint venture with Tencent Holdings Limited.

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.

The ratings of SRE reflect its balance sheet strength, which AM Best assesses 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.

SRE’s risk-adjusted capitalisation is assessed at the strongest level, as measured by BCAR, and is expected to remain at a similar level over the medium term. Although its capital and surplus has demonstrated a stable growth trend with full profit retention over the past years, the company’s absolute capital base of USD 81 million as of year-end 2020 remains small for a reinsurer. Its high retrocession dependency is largely offset by the strong credit profile of its parent, SFM, which undertakes the largest share in SRE’s retrocession programme.

SRE’s operating performance has been mostly profitable, with a five-year average return-on-equity ratio of 3.5% (2016-2020) and a combined ratio of 91.2%, although there has been historically moderate volatility in its underwriting performance, mainly driven by changing business strategy and small net premium base. Its underwriting performance is underpinned by a relatively low loss ratio compared with peers, as the company benefits from highly profitable captive business from the Samsung group. The company has been cautiously growing third-party treaty business in recent years, of which the share increased to 28% of GPW in 2020, exhibiting moderate profit volatility. SRE reported a favourable underwriting performance in 2020 with a combined ratio of 81%, mainly driven by an enlarged net premium base under a new retention strategy and decreased captive cargo claims amid the COVID-19 pandemic. Its five-year average net investment yield is low compared with its regional peers due to its highly conservative investment strategy.

SRE is a small reinsurer mainly focused on Southeast Asia and India, with a GPW of approximately USD 76 million in 2020. SRE’s volume of captive business declined materially in 2020, mainly due to a change in the intra-group business arrangement with its Samsung Group affiliates. Nonetheless, AM Best expects this captive business to remain a key contributor to SRE’s underwriting 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.

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. These ratings also recognise the wide range of implicit and explicit 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 low net underwriting leverage and a highly liquid investment portfolio, which partially offsets its small capital base of USD 22 million as at year-end 2020. 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. Yet, with high reinsurance dependence, AST’s credit risk was heightened moderately in 2020 due to its enlarged reinsurance asset base following large loss cases and increased cession to domestic reinsurers with lower credit ratings. Nonetheless, AM Best views the company as having a sufficient capital buffer against such risk.

AST has a track record of strong operating performance, underpinned by profitable underwriting and stable investment activities, as demonstrated by a five-year average return-on-equity ratio of 10.2% (2016-2020) and a combined ratio of 68.9%. AST’s strong underwriting performance is driven principally by its low expense ratio, attributed to a large ceding commission income coupled with low acquisition costs from the direct distribution channel. Deterioration in its loss ratio in 2020 due to a couple of large unprecedented claims was offset mostly by an improved expense ratio driven by increased ceding commissions and reduced management expenses. AST’s net premium base has decreased, caused by the declining volume of Samsung Group business, which has been a major source of profit for AST. AM Best notes that the company plans to expand its profile into other Korean Interests Abroad (KIA) and select local inward reinsurance business over the coming years, while restructuring its retained portfolio toward small to medium-sized risks to reduce underwriting volatility.

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 GPW in 2020. With the majority of its premiums generated from Samsung Group-related business and KIA, the company’s exposure to its domestic Indonesia market remains limited despite its strategic focus to strengthen local inward reinsurance business over the past years.

AST shares the Samsung brand and is highly integrated into its parent, receiving support in various areas including marketing, pricing, underwriting and risk management. The company also receives direct reinsurance support from SFM.

The ratings reflect SVI’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and appropriate ERM. These ratings recognise the wide range of implicit and explicit support provided by SVI’s parent, SFM.

SVI’s balance sheet strength is underpinned by its very low underwriting leverage and strong internal capital generation, which partially offset its relatively small capital base of USD 54 million as of the end of 2020. Its highly liquid investment portfolio consisting of only cash and time deposits also supports the balance sheet strength assessment. Negative balance sheet strength factors include SVI’s high dependency on reinsurance, which is offset partially by its well-diversified reinsurance panel of companies with good credit profiles, including SFM.

SVI has a track record of strong operating performance with a five-year average return-on-equity ratio of 14.9% (2016-2020) and a combined ratio of -88.3%. The company’s strong underwriting performance is driven mainly by its large reinsurance commission income, reflecting SVI’s fronting insurance business model. Although slightly volatile given its small premium base, its favourable loss experience, as evidenced by a five-year average loss ratio of 26.3% (2016-2020), is due in large part to highly profitable captive business from Samsung group-related risks. A solid stream of interest income provides additional stability to SVI’s overall bottom line.

SVI has an approximate 2% share of Vietnam’s non-life insurance market, based on GPW in 2020. The company has limited exposure to its domestic market, with most of its revenue generated by Samsung Group-related business and 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 about 90% of its premium income.

SVI’s ERM system, which is part of SFM’s global governance system, is 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 destination for Korean investments.

Negative rating actions could occur for SFM if there is a continuous deteriorating trend in its operating performance to a level that no longer supports the current strong assessment. Negative rating actions could also occur if there is a significant deterioration in its risk-adjusted capitalisation.

Negative rating actions could occur for SRE if there is a deterioration in its operating performance arising from a continued unfavourable trend in its underwriting performance. Negative rating actions may also arise if support from SFM is reduced to an extent that no longer supports the current level of enhancement.

Negative rating actions could occur for AST if there is a sustained deterioration in its operating performance, such as increased underwriting volatility with large scale accident claims while the net premium base remains contracted, or if support from SFM is reduced to an extent that no longer supports the current level of enhancement.

Negative rating actions could occur for SVI if the company’s operating performance should deteriorate materially, for example due to an increased frequency of large-scale loss events. Negative rating actions also may arise if support from SFM is reduced to an extent that no longer supports the current level of enhancement.

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.

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