Best affirms financial strength of Saudi captive
AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) of Bermuda-based Stellar Insurance Ltd, an indirect wholly-owned subsidiary of Saudi Arabian Oil Company.
The outlook of these credit ratings is stable.
The ratings reflect Stellar’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
Stellar’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s capital adequacy ratio.
AM Best expects Stellar’s risk-adjusted capitalisation to remain at the strongest level, supported by its low underwriting leverage, full earnings retention and comprehensive reinsurance programme.
The agency said Stellar’s capital position has strengthened in recent years, supported by the full retention of profits generated since its incorporation in 2001. This has enabled the company to increase its underwriting capacity gradually.
Stellar’s capital requirements within the BCAR model are driven largely by investment risk, stemming from large fixed income and mutual fund holdings.
An offsetting balance sheet strength factor is the captive’s reliance on reinsurance to provide high limit energy cover. The credit risk associated with reinsurance is partially mitigated by Stellar’s use of a diversified panel of financially strong reinsurers.
AM Best said Stellar has reported strong operating results over the past five years, mainly driven by robust underwriting profits in the absence of large losses as evidenced by a five-year (2016-2020) weighted average combined ratio of 12.2 per cent.
The agency said it expects prospective performance to remain strong, albeit subject to potential volatility due to the captive’s exposure to high severity, low frequency losses in its energy programme.
Stellar’s business profile assessment reflects the key role it plays in SAOC’s overall risk management framework. As a single parent captive, Stellar’s purpose is to provide transfer solutions for risks emanating from SAOC’s and its affiliates’ operations.
AM Best said Stellar’s portfolio of business is concentrated by line of business, with the majority of premiums represented by energy onshore and offshore property risks, as well as by geography with approximately 92 per cent of 2020 premiums associated with risks located in Saudi Arabia.