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-AM Best upholds ratings of Samsung Fire & Marine Insurance.

M2 EQUITYBITES-January 5, 2011--AM Best upholds ratings of Samsung Fire & Marine Insurance(C)2011 M2 COMMUNICATIONS

5 January 2011 - AM Best confirmed on Tuesday the A+ (superior) financial strength rating (FSR) and "aa" issuer credit rating (ICR) of South Korean Samsung Fire & Marine Insurance Co Ltd (SEO:000815), or Samsung F&M.

The outlook is "positive".

The ratings reflect Samsung F&M's superior capitalisation, market leadership, profit oriented strategy, low volatility in its operations and solid risk management, while "positive" outlook reflects the company's improved profitability and risk management over the past five years, the analysts said.

Samsung F&M has maintained a superior capital position over the past five years. The company's adjusted capital and surplus (sum of capital and surplus and catastrophe reserves) stood at KRW6.516bn (USD5.8m/EUR4.4m) as of September 2010. The company's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), has been maintained at a superior level over the last five years. Due to its conservative and sound investment portfolio, Samsung F&M's risk-based capitalisation showed a low volatility over the last five years as well. According to the agency, Samsung F&M was able to improve its investment yield structure during the global financial crisis, as the company was able to capture good investment opportunities.

The company's investment income increased every year over the past five years in line with the growth of its asset size. The investment income was KRW1.01bn in fiscal year 2009 with an annual compound growth rate of 12% over the last five years (ranging from fiscal year 2004 through fiscal year 2009). The underwriting income showed deterioration in fiscal year 2009 and continues in fiscal year 2010 mainly due to a high motor loss ratio. Although Samsung F&M maintains a favourable gap of 2-3% versus the market loss ratio, the overall loss ratio has increased by 5%, recording 72% in fiscal year 2009 and a higher number is expected in fiscal year 2010, AM Best noted. As the company took several counter measures including pricing adjustment in fiscal year 2010, the rater expects that the underwriting income will improve quickly starting in fiscal year 2011. As observed in the last underwriting cycle, Samsung F&M will benefit most in the industry once the motor loss ratio starts to improve.

As long-term business in Korea has promised growth as well as profitability over the past five years, competition has increased. Profit margins in the long term insurance business have been under pressure, with Samsung F&M's risk loss ratio having increased for two consecutive years in fiscal years 2008 and 2009. As the company has adopted a preemptive premium adjustment system in line with its strong risk management practice, AM Best takes note of the improvement observed in fiscal year 2010, expecting that further improvement will be recorded in fiscal year 2011.

Partially offsetting these positive rating factors are the intensified competition in the Korean non-life market and the continuation of the low interest rate environment, AM Best noted

The continuation of the low interest rate environment and the increase of medical costs present challenges for Samsung F&M to maintain its profitability in the long term insurance business, the rater elaborated.

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Publication:M2 EquityBites (EQB)
Date:Jan 5, 2011
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