OREANDA-NEWS. 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 reflects Fitch's view that there is continued support from its parent 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 93.85% of SGI. Further, SGI has maintained its sound 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 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 24% at end-September 2015 based on risk exposure. At end-September 2015, its regulatory risk-based capital ratio was 458%, well in excess of the regulatory minimum of 100%. The capital is a buffer against SGI's potentially volatile business portfolio. Debt leverage amounted to 3.4% at end-September 2015, well within the tolerance levels for SGI's rating.

SGI's investment mix is highly liquid, with more than 85% in cash and deposits and fixed-income instruments. Its exposure to stock investments remains at a manageable level, in our opinion, even though it had increased to 7.9% at end-September 2015 from 7.1% of total investments at end-December 2014. Stock investments constituted less than 15% of total shareholders' equity at end-September-2015, well within the median score of SGI's current rating category.

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 rating 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 above 95% (2014: 64.5%) 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 local currency sovereign (AA/Stable) 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.