Best Affirms Samsung F&M ‘A+’ Ratings

A.M. Best Co. has affirmed the financial strength rating of “A+” (Superior) of So. Korea’s Samsung Fire & Marine Insurance Company Limited. Best upgraded the issuer credit rating to “aa” from”aa-.” The outlook for both ratings is stable.

“The ratings reflect Samsung Fire’s prudent capitalization, dominant market position and stable profitability structure,” said Best. “The ratings also recognize the company’s proactive management strategy and excellent risk management.

“Samsung Fire has a leading market position in the Korean non-life insurance industry. The company’s overall market share was 31 percent in financial year 2005. The company’s efficient off-line distribution network and its product development capabilities will enable it to withstand challenges from alternative distribution channels and to maintain its dominant position in the market.

“Samsung Fire is prudently capitalized on a risk-adjusted basis, with a local solvency ratio of 415 percent as of fiscal year 2005. Best’s Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis, also demonstrates the company’s superior capital position.”

Best also noted that the Group “has a stable profitability structure despite the high auto loss ratio experienced in the industry in fiscal year 2005. The company has an expense ratio of 19.7 percent, which was one of the lowest in the industry. The company differentiates itself by maintaining its relatively lower expense ratio and economies of scale due to its larger asset size among other major non-life players.”

As offsetting factors, Best indicated that Samsung Fire has substantial “exposure to volatility in affiliated equity and the market competition from alternative distribution channels.” It also has competition from direct sales distribution of auto insurance and bancassurance that “will remain intense. The increasing deregulation in the industry will exert pressure on Samsung Fire’s operating performance;” however Best said it “believes that the company is well positioned with a strong brand name and a large capital base to cope with these challenges.

“Another offsetting factor is the shareholding of Samsung Electronics. As of fiscal year 2005, Samsung Fire’s investment in Samsung Electronics continued to account for the majority of the affiliated investment, which was equivalent to a significant amount of Samsung Fire’s adjusted capital and surplus. As the share price fluctuates along with the stock index, Samsung Fire’s absolute capitalization may experience some volatility.”