AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) of Stellar Insurance (Stellar) (Bermuda), an indirect wholly owned subsidiary of Saudi Arabian Oil Company (SAOC). 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 (BCAR). AM Best says it 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. The ratings company adds that 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. 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, adds AM Best. An offsetting balance sheet strength factor is the captive’s reliance on reinsurance to provide high gross underwriting limits. AM Best says that the credit risk associated with reinsurance is mitigated partially by Stellar’s use of a diversified panel of financially strong reinsurers. According to AM Best, Stellar has reported strong operating results over the past five years, mainly driven by robust underwriting profits in the absence of large losses, as evidenced by a five-year (2017-2021) weighted average combined ratio of 14 per cent. The ratings company expects Stellar’s 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.
