S&P Lowers Rtgs on Ssangyong Fire, Daehan to 'CCCpi'

    TOKYO--Standard & Poor's--May 10, 2001--Standard & Poor's today lowered its 'pi' financial strength ratings on Ssangyong Fire & Marine Insurance Co. Ltd. and Daehan Fire & Marine Insurance Co. Ltd. to triple-'Cpi' from single-'Bpi'.
    The downgrades reflect the companies' weakened capitalization--the ability of both insurers to generate required capital will be constrained in the near term by extremely adverse operating conditions. Moreover, the companies' market positions continue to deteriorate as underwriting performance weakens amid accelerating deregulation, rate liberalization, and consolidation in Korea's nonlife insurance sector.
    Notwithstanding a Korean won (W) 28.5 billion capital injection in fiscal 1998 (ended March 1999), Ssangyong Fire's capitalization steadily worsened over the past 12 months, partly as a result of its exposure to group member companies, such as Ssangyong Cement, that are undergoing restructuring. Ssangyong Fire's adjusted shareholders funds declined to W63,732 million as of February 2001 from W136,717 million as of March 2000. Its underwriting performance has also been poor, with its combined ratio consistently exceeding 100%. This ratio was 116.8% in March 2000, reflecting another year of underwriting losses. Meanwhile, the company's asset portfolio is more susceptible to fluctuations in the Korean investment markets, which are increasingly volatile. The company's overall earnings are likely to stay under extreme pressure.
    Daehan Fire's capitalization has also deteriorated over the past year, to the point that the regulator recently ordered the company to come up with a capital improvement plan immediately. The insurer's adjusted shareholders funds declined to W22,061 million as of February 2001 from W75,483 million as of the previous March. Meanwhile, its underwriting performance also remains below the industry average. Its combined ratio, one of the weakest in the industry, has exceeded 100% for the past five years. This is partly a result of the company's high concentration in the deregulated auto business, where competition is most intense, and an industrywide rise in loss ratios. The company continues to record a net loss, as its earnings remain under extreme pressure. Moreover, Daehan Fire's overall asset quality is lower than the industry average, reflecting its depleted liquidity and the higher proportion of risk assets in its asset portfolio.
    Without actions to improve their capitalization, both companies are expected to remain very vulnerable to any adverse developments in the operating environment, particularly in the face of mounting pricing pressures and competition in the Korean nonlife sector. ---CreditWire

    Copyright 2001, Standard & Poor's Ratings Services