OREANDA-NEWS. July 06, 2015. Fitch Ratings has affirmed Seoul Guarantee Insurance Company's (SGI) Insurer Financial Strength Rating (IFS) at 'AA-'. The Outlook is Stable.

KEY RATING DRIVERS
The rating incorporates Fitch's view that there is ongoing parental support from Korea Deposit Insurance Corporation (KDIC), a government agency, in view of SGI's importance in promoting and developing the domestic credit and guarantee insurance market. KDIC owns a 93.85% stake in SGI. It also reflects SGI's consistently strong financial performance, well-established market position in the specialised local credit and guarantee insurance market, and solid capitalisation commensurate with its business profile.

The Stable Outlook reflects Fitch'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.

SGI is the market leader in South Korea's guarantee and credit insurance market, with a market share of 25.7% at end-December 2014 based on risk exposure. At end-March 2015, its regulatory risk-based capital ratio was 463%, well in excess of the regulatory minimum of 100% and higher that of the South Korean non-life industry average of 265%. The capital is a buffer against SGI's potentially volatile business portfolio. Debt leverage amounted to 4% at end-March 2015, well within the tolerance levels for SGI's rating.

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

RATING SENSITIVITIES
An upgrade of SGI's ratings in the near term is unlikely unless there are sustained strong improvements in its standalone financial fundamentals, with successful geographical diversification. Key rating triggers for a downgrade include a significant deterioration in the credit profile, with the combined ratio above 95% (2014: 57.4%) and leverage above 20% for a prolonged period. Downward pressure on SGI's rating could also arise from negative rating action on the South Korean sovereign or reduction of government support - by a significant cut in the government's stake in KDIC or the sale of the government's shares to a weaker acquirer.