25 September 2020Asia analysis

AM Best revises Samsung Re’s outlook to negative

AM Best has revised the outlook of Samsung Reinsurance (SRE) to negative from stable, noting the business, which is largely providing captive insurance to Samsung, remains sensitive to claims frequency, and to pressure on its combined ratio.

AM Best said the change in outlook “reflects the increasing negative trend in SRE’s combined ratio over recent years, with elevated volatility in its underwriting performance, while investment performance provides a thin buffer.”

SRE’s current business profile is considered as a relatively profitable captive business to the third-party competitive reinsurance space, AM Best said. However, its “net premium base will remain small according to the business plan, and as a result, underwriting performance will remain sensitive to the frequency of medium to large claims without scale,” it warned.

The rating agency did affirm SRE’s financial strength rating of A, citing its strong balance sheet and adequate operating performance as adequate. Operating performance has been mostly profitable over the past five years, AM Best noted, with a five-year average operating ratio of 83.9 percent.

“However, there was higher volatility in SRE’s underwriting performance over recent years, partially driven by the company’s changing strategies on its retention level in 2017,” it said.

SRE’s plans to grow its treaty and third-party businesses add uncertainties to its operating performance, AM Best added.

AM Best noted that SRE’s risk-adjusted capitalisation remains solid, supported by a moderate net underwriting leverage. The offsetting factors include a relatively small absolute size of capital and surplus of $67 million at year-end 2018, as well as high retrocession dependency.

SRE is a subsidiary of Samsung Fire & Marine Insurance Co. It was established in 2011 and is domiciled in Singapore with a focus on Southeast Asia and a high business concentration in facultative and captive business from the Samsung group.