AM Best Affirms Credit Ratings of Samsung Fire & Marine Insurance Co., Ltd. and PT Asuransi Samsung Tugu; Upgrades Credit Ratings of Core Subsidiaries
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) and also affirmed the FSR A- (Excellent) and the Long-Term ICR of "a-" (Excellent) of PT Asuransi Samsung Tugu (AST) (Indonesia). Concurrently, AM Best has upgraded the FSR to A++ (Superior) from A (Excellent) and the Long-Term ICR to "aa+" (Superior) from "a" (Excellent) of Samsung Reinsurance Pte. Ltd. (SRE) (Singapore). AM Best also has upgraded the FSR to A++ (Superior) from A- (Excellent) and the Long-Term ICR to "aa+" (Superior) from "a-" (Excellent) of Samsung Vina Insurance Co., Ltd. (SVI) (Vietnam). AM Best also has upgraded the FSR to A++ (Superior) from A (Excellent) and the Long-Term ICR to "aa+" (Superior) from "a+" (Excellent) of Samsung Fire & Marine Insurance Company of Europe Limited (SFME) (United Kingdom). 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).
AM Best expects SFM's risk-adjusted capitalisation 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 that totaled KRW 15.5 trillion (USD 13 billion) at year end 2021. Although SFM's capital is subject to some volatility stemming from market value change of affiliated stocks holdings and interest rate movement impact on valuation of available-for-sale bonds, its risk-adjusted capitalisation demonstrates resilience to various capital market stress testing scenarios. The company's balance sheet strength assessment also factors in its debt-free position, the lowest level of underwriting leverage and 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, underpinned by its large net income stream that is mainly supported by robust investment profits, and extremely stable underwriting performance with the lowest combined ratio among its domestic peers. Its net income increased materially in 2021, mainly driven by improved auto line profitability as a result of prior rate hikes and reduced claims frequency amid the COVID-19 pandemic, as well as a one-off special dividend income from the affiliated stock holdings. In SFM's largest business line of long-term insurance, its loss ratio (excluding the impact of the savings component) continued to outperform domestic peers in 2021, although it remained elevated due to ongoing industry-wide pressure on medical claims, which is expected to somewhat stabilise through various mitigative measures. Its investment profits continue to be robust supported by substantial investment asset base of KRW 78 trillion (USD 65 billion) as of year end 2021.
SFM is the leader in South Korea's non-life segment with approximately a 22% market share in terms of gross premium written (GPW) in 2021, and has superior brand power and highly diversified product offerings, as well as strong distribution channels underpinned by its large captive agent network and online channel. The company maintains especially strong leadership in the rapidly growing online auto insurance segment with a high-quality customer base and an immense amount of data and knowledge it has accumulated as the pioneer in this area. As a member of the wider Samsung Group, SFM also underwrites 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 cautiously pursuing global expansion through inorganic growth and partnerships over the past five years, which AM Best expects will help the company gradually increase its presence outside the home market. SFM's most recent ventures include an investment in Canopius Group Limited (Canopius) and their 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.
AM Best believes that SFM's risk management capabilities are superior to those of its domestic and international peers with similar risk profiles, with sophisticated risk management culture and framework that are embedded throughout its organisation.
Negative rating actions could occur for SFM i 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 balance sheet strength fundamentals.
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 support provided by AST's parent, SFM.
AST's risk-adjusted capitalisation is assessed at the strongest level, as measured by BCAR, and supported by solid internal capital generation and low net underwriting leverage, as well as highly conservative investment portfolio. The company's moderately high credit risk derived from sizeable reinsurance exposure to domestic (re)insurers is partially mitigated by affiliated and international reinsurance partners of high credit quality, and strict reinsurance counterparty monitoring by SFM.
AST has a track record of strong operating performance, underpinned by profitable underwriting and stable investment activities, as demonstrated by a five-year average combined ratio of 69% (2017-2021) and a return-on-equity ratio of 8.7%. Its strong underwriting performance is mainly driven by a low expense ratio, which is attributed to large reinsurance commission income and low acquisition costs from the direct distribution channel. The company also has benefitted from highly profitable Samsung group risks and relatively favorable loss ratios of Korea Interest Abroad (KIA) business compared with local Indonesian business.
AST's net premium base has notably declined over the past five years, mainly driven by continued rate cuts for marine business from the Samsung group to reflect its good loss ratio, as well as reduced cargo volume amid the COVID-19 pandemic. Despite the inherent volatility due to the small premium base, AM Best expects that the company's underwriting profitability will continue to be supported by sizeable commission income from increasing new Korean investments in Indonesia, coupled with the company's efforts to restructure the local business.
AST is a joint venture between SFM and PT Asuransi Tugu Pratama Indonesia Tbk, which own 70% and 30% of the company, respectively. The limited business profile assessment mainly reflects AST's small scale and concentration toward property and marine business. The company mainly focuses on underwriting risks related to Korean companies in Indonesia including Samsung group affiliates. A majority of its premiums are generated from KIA business (63% of GPW in 2021), while a smaller portion is from Samsung group business (9%). AST's exposure to the local Indonesia market is small given its limited domestic market access as a foreign player and SFM's tight underwriting discipline. 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 IT.
Negative rating actions could occur for AST if support from SFM is reduced to an extent that no longer supports the current level of enhancement. Negative rating actions could also occur if there is a sustained deterioration in AST's operating performance, or its risk-adjusted capitalisation deteriorates significantly such as from heightened credit risk following major loss events due to its high reinsurance dependency.
The rating upgrades of SRE, SVI, and SFME follow AM Best's assessment of these entities being newly added members of the lead rating unit of SFM. The rating actions reflect each of these entities' strategic importance to and integration with SFM, as well as significant explicit and implicit support they receive from SFM. AM Best views that SFM will continue to be strongly committed to the development of these entities and will provide necessary financial support if needed.
As a wholly owned subsidiary and the only reinsurer within the SFM group, SRE is strategically important to SFM in its effort to expand internationally and diversify its business into reinsurance. SRE's operations are highly integrated into SFM's global inward business strategy; it serves as a marketing arm and a source of market intelligence for SFM's reinsurance business in Asia. SRE receives significant retrocession support from SFM for underwriting large-sized risks and third-party treaty business, which it resumed in 2018. In addition, the company receives a wide range of implicit support from SFM in areas such as underwriting, pricing, actuarial, IT and risk management.
As a joint venture between SFM (75%) and Vietnam National Reinsurance Corporation (25%), SVI is strategically important to SFM as it offers coverage to Samsung group affiliates in Vietnam, including Samsung Electronics, which has a substantial volume of investments in the country. The contributions from Samsung group risks to SVI's GPW in 2021 was 55%. As demonstrated by its five-year average net retention ratio of 7% (2017-2021), SVI heavily uses reinsurance to underwrite large-size risks, mainly through facultative support from SFM. The company also benefits from direct access to the resources of SFM including managerial oversight and technical support, including marketing, underwriting, pricing, actuarial, IT and risk management.
As a wholly owned subsidiary, SFME is strategically important to SFM as it enables SFM to self-insure Samsung group risks in the European Union, United Kingdom and other selected territories. In 2021, 67% of SFME's GPW and 96% of net premiums written was generated from insuring Samsung group risks. SFME benefits from explicit support from SFM in the form of a net worth maintenance agreement, which was issued in 2019, under which SFM shall ensure that SFME maintains sufficient capital resources and liquidity to meet its regulatory requirements. SFME also receives intragroup reinsurance support from SFM in the form of treaty and facultative covers; SFM is the largest reinsurer of SFME measured by a proportion of reinsurance premium ceded. SFME also receives a wide range of implicit support from SFM including underwriting, pricing, actuarial, IT and risk management.
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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