A.M. Best Affirms Rating of Samsung Fire & Marine.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Oct. 12, 2001

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) of Samsung Fire & Marine Insurance Company, Ltd., Korea, and assigned it a stable outlook.

The rating reflects the company's superior capitalization, dominant market position and reasonable operating performance. Continuous restructuring efforts and dynamic business strategies are viewed favorably. In addition, the rating reflects the tremendous benefits of the global brand name of Samsung Group, which is a strategic competitive edge under the current unforeseeable market condition. Offsetting factors include the uncertainty from the market liberalization in auto insurance, which accounts for nearly 40% of the market premium volume; the concentration to Samsung affiliates in equity investment; and a long-term savings business vulnerable to a falling interest rate environment.

The company has maintained the highest solvency position in the Korean non-life insurance industry. Its underwriting leverage--net premium written to policyholder surplus on the basis of excluding long-term (pure) savings at the end of fiscal year 2000--was 1.47 times. The conservative and strong solvency position is further emphasized when measured by the Korean regulatory approach and Best's capital adequacy ratio (BCAR). The solvency ratio in the Korean approach was 395.1% at the end of fiscal year 2000, which is about four times higher than the regulatory requirement.

The company has a solid leadership market position and a strong premium growth in each line of business that it writes--automobile, long-term savings and general lines. In fiscal year 2000, its overall market share was further increased to 29.2% from 27.2% in the previous year, and its net premium written grew to 23.1%. The driving factor is the acceleration of not only flight to size but flight to quality in consumer behaviors following the regulatory actions to several insolvent insurance companies.

After completing hardware and software restructuring steps, Samsung has implemented continuous restructuring plans focusing on differentiations in service, product, marketing, business and management. In addition to the continuous restructuring efforts, the established distribution network and the dynamic business strategy adopted by the company will enable it to take advantage of current and future opportunities in the market.

Although Samsung had a 9.3% decrease in adjusted capital due to the unrealized capital loss out of the depressed stock market and the stock buyback, it was able to maintain a favorable operating ratio, which was seen during the last four years.

An offsetting factor is the uncertainty associated with the insurance market liberalization, particularly in auto insurance. In the early stage, insurers might benefit from slightly increasing premium under the unofficial and invisible tariff system. In the long term, A.M. Best believes that new market participants such as mono-line insurers with strong capitalization and a differentiated distribution network can be a potential threat to the existing insurance companies. Mitigating this negative factor is that the company is well positioned with a strong brand name and a large capital base to cope with these new threats.

Another offsetting factor is the continued volatility in the Korean capital market, especially in the stock market. The company has an equity portfolio of 8.9% of total assets as of March 2001. However, Samsung Electronics alone accounts for 54.6% of the equity portfolio, which leads to risk concentration. As a result, the possible further depression in the stock market might deteriorate the company's policyholder surplus.

The industry still faces a profit margin pressure in long-term savings business due to the falling trend in interest rates. To cope with this problem, Samsung has restructured its product mix to focus on products with variable interest rates, reduced its predetermined interest rate step by step and introduced an asset liability management (ALM) system.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.