S&P: Samsung Fire & Marine Insurance's capital position "remains sound" despite 2.2 trillion won bet [fn Market Watch]

[Financial News] As Samsung Fire & Marine Insurance moves to secure control of global specialty insurer Canopius with an investment of 2.2 trillion won, an international credit rating agency has said the large-scale acquisition is unlikely to have a significant impact on its capital soundness. With the company expected to be able to cover the acquisition cost without external borrowing and the overseas business's contribution to net profit projected to rise to as much as 15% within the next two years, Samsung Fire & Marine Insurance's global expansion is expected to gather pace.
Global credit rating agency S&P said Samsung Fire & Marine Insurance "has the capital strength to comfortably absorb the acquisition cost" and assessed that "the transaction will contribute to expanding its global business reach and diversifying its earnings structure."
Samsung Fire & Marine Insurance plans to invest about $1.67 billion (approximately 2.2 trillion won) to increase its stake in Canopius, which participates in the UK Lloyd's insurance market, from 40.0% to about 80.6%.
Under the deal, Samsung Fire & Marine Insurance, together with global private equity firm KKR and Korea Investment Corporation (KIC), will acquire for about $2.5 billion the 60% stake in Canopius held by a consortium led by Centerbridge Partners. Once the deal is completed, Samsung Fire & Marine Insurance will secure control as the largest shareholder, with an 80.6% stake. KKR and KIC will hold about 12.1% and 7.3%, respectively. The deal is currently awaiting regulatory approval.
While the market saw the capital burden from a large overseas merger and acquisition (M&A) as a key variable, S&P assessed Samsung Fire & Marine Insurance's financial cushion as sufficient. The investment amounts to only about 6% of the company's consolidated equity as of the end of June this year. Applying S&P's own capital model, the company is expected to maintain "excellent" capital adequacy after the acquisition, meeting the 99.99% confidence level.
S&P particularly noted the low likelihood of external borrowing to fund the acquisition. As the large stake purchase is not expected to result in additional borrowing, the company will have room to expand its overseas business while maintaining financial stability. Samsung Fire & Marine Insurance currently has an "AA" credit rating with a "Stable" outlook. S&P judged that the acquisition would not significantly weaken its capital adequacy.
The key to the acquisition, analysts say, lies in diversifying the company's earnings base rather than simply expanding its overseas assets. S&P projected that the overseas business's contribution to Samsung Fire & Marine Insurance's net profit would rise from about 6% last year to 10–15% within the next two years. At the upper end of that forecast, 15%, the overseas contribution to earnings would be about 2.5 times its previous level.
Canopius is a Lloyd's insurer operating in the global specialty insurance sector. Samsung Fire & Marine Insurance expects that securing control will strengthen its expertise in global specialty insurance and diversify its regional business portfolio.
S&P projected that "the acquisition of control of Canopius will further solidify Samsung Fire & Marine Insurance's strong business foundations" and "contribute to strengthening its expertise in global specialty insurance and increasing its level of geographic diversification."
[email protected] Kim Hyun-jung Reporter