Samsung Fire & Marine Insurance And Its China Subsidiary Ratings Affirmed; Outlooks Stable

  • SFM is likely to remain a leading property & casualty (P&C) insurer in Korea, backed by its distinctive brand awareness and strong control over distribution channels.
  • We view SFM's capital buffer as very strong, underpinned by strong capital generation capabilities and moderate business growth.
  • We are affirming our 'AA-' long-term issuer credit and financial strength ratings on SFM. We are also affirming our 'A+' ratings on Samsung Property & Casualty Insurance Co. (China), the group's highly strategic subsidiary.
  • The stable outlook reflects our expectation that SFM will sustain its well-established franchise, leading market position, as well as very strong capitalization over the next two years.
HONG KONG (S&P Global Ratings) Aug. 26, 2019--S&P Global Ratings said today that it had affirmed its 'AA-' financial strength and long-term issuer credit ratings on Korea-based Samsung Fire & Marine Insurance Co. Ltd. (SFM). We also affirmed our 'A+' financial strength and long-term issuer credit ratings on SFM's subsidiary Samsung Property & Casualty Insurance Co. (China). The outlooks are stable.
The stable outlook on SFM reflects our view that the insurer will maintain its current capitalization on the back of stable operating performances and moderate business growth over the next one to two years. We expect SFM to sustain its leading market position over the period underpinned by its distinctive franchise and well-controlled distribution channels.
We may lower the ratings on SFM if the insurer's capital adequacy deteriorates substantially over the next one to two years, which could be as a result of one or more of the following:
  • Significant increase in risk appetite in investment allocation;
  • Aggressive capital management with excessive dividend payouts or significant share buybacks;
  • Large mergers and acquisitions; or
  • Substantial deterioration in underwriting performance.
Although unlikely, we could upgrade SFM in the next one to two years if its capital and earnings strengthen significantly to an extremely strong level.
The stable outlook on Samsung China reflects the outlook on SFM. We expect Samsung China to remain a highly strategic subsidiary of the group over the next two years.
We may downgrade Samsung China if we lower the rating on SFM.
We may also downgrade Samsung China if we view that its importance to the parent group has diminished. This could occur if Samsung China's underwriting performance deteriorates significantly or it has a strategic misalignment with the group's overseas expansion plan. However, we view this change of importance to the parent as unlikely over the next two years.
We consider an upgrade to be unlikely over the next two years, given that the rating on Samsung China is at the same level as that on the China sovereign.
We affirmed the rating because we expect SFM to sustain its leading position in Korea's P&C insurance market backed by its distinctive brand awareness and strong control over distribution channels. The insurer will likely maintain its very strong capitalization underpinned by its stable underwriting performance and risk control on investments. We believe SFM has a comprehensive risk management process that is entrenched in a robust governance structure. We expect SFM to gradually expand in overseas markets, although the overseas earnings contribution is currently limited compared with 'AA' rated global and regional peers.
We expect SFM to remain the largest P&C insurer in Korea. SFM had about 24% market share of direct premiums written in 2018. The insurer's strong control over its distribution channels, such as tied agents, telemarketing, and online channels, ensures good quality of the businesses underwritten. SFM generates revenues from diversified business lines across long-term, auto, and commercial and it maintains the largest market position across these businesses. SFM has a record of stable operating performance compared with the industry average. It has consistently posted higher return on revenue than domestic peers and its average return on assets over the past five years was largely stable at about 1.4% compared with the industry average of around 1.0%.
SFM has a record of prudent strategic planning and execution, and sophisticated financial management. Strong management and risk management capabilities enabled SFM to maintain market leadership. That said, compared with international P&C insurance peers, SFM's concentrated business in Korea limits its geographic diversity. We expect SFM's overseas expansion to be gradual. In May 2019, SFM announced its plan to acquire a significant minority stake in Canopius, a Switzerland-based reinsurer. The investment is worth about USD 150 million which accounts for only about 1.4% of SFM's shareholders' equity as of end of 2018.
We expect SFM's capital and earnings to remain very strong over the next two years, given the insurer's moderate business growth and strong capital-generation abilities. We anticipate a gradual improvement in the underwriting profitability owing to premium adjustments on auto and medical indemnity policies. However, intensifying competition could increase SFM's expense ratio and pressure profitability. SFM's regulatory solvency ratio is 353% as of June 30, 2019, well above the minimum regulatory requirement of 100%. SFM's diversified fixed-income and loan portfolio offsets some concentration risk from its equity holdings that are mainly related to the Samsung group. The insurer has a good record of managing its asset quality with limited impairment losses. However, SFM's sensitivity to investment volatility could heighten due to its increasing exposure to loans or securities with alternative investment features. Such assets account for about 35% of its investment assets base as of end-2018.
We affirmed the ratings on Samsung China to reflect our view that the company will continue to play an important role in providing insurance to the Samsung group's affiliates and other Korean businesses in China, and support SFM's overseas business expansion strategy. We still view Samsung China as a highly strategic subsidiary of SFM.
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