A.M. Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” of Stellar Insurance (Stellar), a subsidiary of Saudi Arabian Oil Company (SAOC), based in Bermuda.
The outlook of these credit ratings is stable.
A.M. Best categorised its balance sheet strength as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Stellar’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR).
A.M. Best stated that Stellar’s risk-adjusted capitalisation is expected to remain at the strongest level, supported by low underwriting leverage, full earnings retention and a comprehensive reinsurance programme.
SAOC has strengthened Stellar’s capital position by allowing the captive to retain all profits generated since its incorporation in 2001.
The rating firm said this has enabled Stellar to increase its underwriting capacity gradually. Its capital requirements through the BCAR are driven largely by investment risk, as Stellar holds a significant proportion of assets in mutual funds that have varying liquidity and duration.
It was also noted that an offsetting balance sheet strength factor remains the captive’s reliance on reinsurance to provide high limit energy cover. However, the associated credit risk is mitigated 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.
A.M. Best stated that they expect prospective performance to remain strong, “but it is subject to volatility due to the captive’s exposure to high severity, low-frequency losses in its energy programme”.
Stellar’s business profile and ERM assessment reflect the key role it plays in SAOC’s overall risk management framework.
As a single parent captive, its purpose is to provide financial risk transfer solutions for risks emanating from SAOC’s operations.
According to A.M. Best, Stellar’s portfolio of business is concentrated by the line of business, with the majority of premiums represented by energy onshore and offshore property risks, as well as by geography with approximately 96 percent of 2019 premiums associated with risks located in Saudi Arabia.
