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 Bermuda-domiciled Stellar Insurance. The outlook for the ratings is stable.
Stellar is a single parent captive owned by Saudi Arabian Oil Company (SAOC).
The majority of Stellar’s premiums are represented by energy onshore and offshore property risks, and approximately 92% of premiums are associated with risks located in Saudi Arabia.
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.
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.
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, and this has enabled the company to increase its underwriting capacity gradually.
The captive’s capital requirements within AM Best’s Capital Adequacy Ratio (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.
Stellar has reported strong operating results over the past five years, driven by robust underwriting profits in the absence of large losses, shown by a five-year (2018-2022) weighted average combined ratio of 20.7%.
AM Best expects performance in 2023 and beyond to remain strong, albeit subject to potential volatility due to the captive’s exposure to high severity, low frequency losses in its energy programme.