SINGAPORE–(BUSINESS WIRE)–AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” of Singapore Reinsurance Corporation Limited (Singapore Re) (Singapore).
The ratings reflect Singapore Re’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The revision of the outlooks to negative reflects increasing pressure on Singapore Re’s business profile assessment. Whilst long-standing relationships with a small number of local cedants, some of which have ownership stakes in Singapore Re, have provided the company with access to profitable business, AM Best views the concentration and reliance on these key cedants as high. In addition, Singapore Re’s expansion across the regional reinsurance market over recent years has generated increased volatility in underwriting performance amid generally competitive market conditions and increased exposure to natural catastrophe activity.
The company’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which is expected to remain at the strongest level over the medium term. Despite an elevated dividend payout ratio over the past five years, retained earnings have remained sufficient to support new business growth. Other balance sheet considerations include the company’s moderate risk investment strategy and high usage of and dependence on retrocession to manage exposure to catastrophe events, accumulations and large single risks.
AM Best views Singapore Re’s operating performance as adequate with the company having reported a five-year average return-on-equity ratio of 4% (2015-2019). However, underwriting performance has demonstrated increased volatility over recent years with the company’s combined ratio exceeding 105% in both 2018 and 2019. The company’s overall earnings remain driven by investment operations, which have generated a five-year average net investment yield of 2.7% (2015-2019). During the first six months of 2020, Singapore Re reported a pre-tax operating profit of SGD 4.4 million, as compared with SGD 6.9 million for the same period in 2019. Despite this, the company’s underwriting result was in a loss position for the first six months of 2020, driven in part by claims experience and reserving related to the COVID-19 pandemic.
AM Best views the company’s ERM approach as appropriate given the current size and complexity of its operations. The company identifies and measures key risks on a frequent basis and manages these in conjunction with its Own Risk and Solvency Assessment (ORSA) framework.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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