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Stellar marks for Stellar Insurance, Bermuda captive of Saudi oil

Headquarters for Saudi Arabian Oil Company (Saudi Aramco) in Dhahran, Eastern Province, Saudi Arabia (File photograph)

The Bermuda captive of one of the world’s largest companies has continued strong operating results over the past five years, driven partly by robust underwriting profits and the absence of large losses.

Some evidence of this for the single-parent captive of Saudi Arabian Oil Company (also known as Saudi Aramco) is a five-year (2017-2021) weighted average combined ratio of 14.6 per cent.

Combined ratio measures underwriting profitability. A ratio below 100 per cent indicates that the company is making an underwriting profit, while a ratio above 100 per cent means that it is paying out more money in claims than it is receiving from premiums.

The 14.6 per cent measure for Stellar Insurance, Ltd denotes extraordinary profitability.

AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) for Stellar, an indirect wholly owned subsidiary of SAOC, the state-owned energy and chemical 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 its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio.

AM Best said it expected Stellar’s risk-adjusted capitalisation to remain at the strongest level, supported by its low underwriting leverage, full earnings retention and a comprehensive reinsurance programme.

The rating agency observed: “Stellar’s capital base has grown steadily over time, with earnings being retained fully since the company’s 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 and catastrophe risk.

“Investment risks stem from the company’s large fixed-income and mutual fund holdings, while catastrophe risk is driven by the company’s large per risk underwriting exposure.

“An offsetting balance sheet strength factor is the captive’s reliance on reinsurance to provide high gross underwriting limits.

“The credit risk associated with reinsurance is mitigated partially by Stellar’s use of a diversified panel of financially strong reinsurers.

“Stellar has reported strong operating results over the past five years, mainly driven by robust underwriting profits in the absence of large losses.

“AM Best 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.

“Stellar’s portfolio 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 89 per cent of premiums associated with risks located in Saudi Arabia.”

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Published December 01, 2022 at 7:45 am (Updated December 01, 2022 at 8:15 am)

Stellar marks for Stellar Insurance, Bermuda captive of Saudi oil

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