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-based Stellar Insurance. The company is an indirect wholly-owned subsidiary and single-parent captive of the 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”. This is in addition to its strong operating performance, neutral business profile and appropriate enterprise risk management. The rating actions reflect 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 AM Best’s capital adequacy ratio. The ratings company 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 ratio are driven 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, says AM Best. The credit risk associated with reinsurance is mitigated partially by Stellar’s use of a diversified panel of financially strong reinsurers. Stellar’s portfolio is concentrated by line of business, with the majority of premiums represented by energy onshore and offshore property risks. It’s also concentrated by geography with approximately 92 per cent of premiums associated with risks located in Saudi Arabia.
