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RPT-Fitch Affirms Seoul Guarantee Insurance's IFS at 'AA-'/Stable
January 28, 2014 / 9:12 AM / 4 years ago

RPT-Fitch Affirms Seoul Guarantee Insurance's IFS at 'AA-'/Stable

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Jan 28 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Seoul Guarantee Insurance Company’s (SGI) Insurer Financial Strength rating (IFS) at a€˜AA-a€™. The Outlook is Stable.

KEY RATING DRIVERS

The rating incorporates continuing parental support from Korea Deposit Insurance Corporation (KDIC), a government agency, given SGIa€™s importance in promoting and developing the domestic credit and guarantee insurance market. KDIC currently holds a 93.85% stake in SGI. It also reflects SGIa€™s consistently strong financial performance, well-established market position and solid capitalisation relative to its business profile.

The Stable Outlook reflects Fitcha€™s expectation that SGI will maintain its sound financial fundamentals. This is supported by its prudent underwriting approach, which places a strong emphasis on bottomline profitability as opposed to topline growth.

SGIa€™s share in South Korea’s guarantee and credit insurance market improved progressively to 26.3% at end-June 2013 from 23.5% at end-March 2010. Its regulatory capital position is solid. At end-November 2013, its regulatory risk-based capital ratio was 504.3%, well in excess of the regulatory minimum of 100%. The sound capital levels are a buffer against its potentially volatile business portfolio. Debt leverage has steadily declined to 5.3% at end-November 2013 from 17% at end-March 2008, well within the tolerance levels for SGIa€™s current rating.

The combined ratio was 93.5% for the period 1 April to 31 November 2013, as a result of an increase in claims payment. Nonetheless, the company expects its combined ratio to improve to about 81% for 2014 in view of tightening of various underwriting and risk management procedures, such as the reduction of underwriting authority limits delegated to the branches.

These are counterbalanced by the inherent business risks associated with a niche business that moves in tandem with economic conditions, as well as the companya€™s limited geographical diversification. SGI sources more than 95% of its business premiums from South Korea.

RATING SENSITIVITIES

Further upgrade of SGI in the near term is unlikely unless there are sustained strong improvements in its standalone financial fundamentals. Key rating triggers for a downgrade include a significant deterioration in the credit profile, with the combined ratio rising above 90%, and leverage rising above 20% for a prolonged period. Downward pressure on SGIa€™s rating could also arise from negative rating action on the South Korean sovereign and reduction of government support - by a significant cut in the governmenta€™s stake in KDIC or the sale of the governmenta€™s shares to a weaker acquirer.

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