AM Best has upgraded the Long-Term Issuer Credit Rating to “a+” (Excellent) from “a” (Excellent) and affirmed the Financial Strength Rating of A (Excellent) of Stellar Insurance, Ltd. (Stellar) (Bermuda), an indirect wholly owned subsidiary of the Saudi Arabian Oil Company (SAOC). The outlook of these Credit Ratings (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.
The rating actions reflects the company’s strengthening balance sheet fundamentals, supported by a consistently strong operating performance and the improved credit quality of its parent company, SAOC.
Stellar’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects 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. 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, evident by a five-year (2018-2022) weighted average combined ratio of 20.7%. AM Best expects performance in 2023 and prospectively 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 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 92% of premiums associated with risks located in Saudi Arabia.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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