Best Affirms Samsung’s ‘A+’ Rating

February 16, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A+” (Superior) of South Korea’s Samsung Fire & Marine Insurance Company Limited with a stable outlook.

“The rating reflects Samsung’s superior capitalization, dominant market position and sound profitability,” said Best. “The rating also recognizes the company’s excellent risk management and proactive management strategy.”

Best noted that “Samsung has the highest solvency position among all Korean non-life companies. On an adjusted basis, the company’s risk-bearing insurance underwriting leverage at the end of fiscal year 2003 was 0.92 times. This conservative level is further demonstrated by the Korean regulatory solvency ratio, which stands at 456 percent. Both Best’s Capital Adequacy Ratio, as well as the company’s own risk-based capital model, showed numbers above 300 percent.

“The company has a leading market position in every line of business that it writes in Korea, including motor, long-term savings and commercial lines. Its overall market share in fiscal year 2003 was 31.9 percent. The efficient off-line distribution network and the proactive business strategy to enter new markets through product development will enable Samsung to cope with future challenges in the alternative distribution channel. The company is in the process of changing its Chinese branch status into subsidiary status to expand its China operation.

“Samsung has the best profitability structure among the major non-life companies in Korea. The company differentiates itself from other non-life insurers by having a low expense ratio of 23.5 percent and high investment income due to its larger asset base. The company’s invested asset market share was 40 percent in fiscal year 2003.”

As offsetting these factors best cited “the continuation of the low interest rate environment and market competition from the alternative distribution channel.”
The rating agency said it “believes that competitors engaged in direct sales of motor insurance and bancassurance sales of long-term products will take up a significant portion of market share from the existing distribution channel. As competitors will tend to focus on market share rather than profitability, pressure will be exerted on Samsung’s operating performance as well. Samsung is well positioned with a strong brand name and a large capital base to cope with these challenges.

Another offsetting factor is the low interest rate environment. Although the company is practicing asset liability matching, low interest rates are exerting pressure on the interest margin of the long-term product portfolio.”

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