Stellar Insurance Gets Credit Ratings Boost from AM Best

Stellar Insurance Receives Strong Credit Ratings

LONDON--AM Best has confirmed the impressive Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of 'a+' (Excellent) for Stellar Insurance, Ltd. (Stellar), based in Bermuda. This recognition highlights the company’s solid financial foundation and robust capabilities in risk management, which are essential in today’s competitive insurance industry.

Key Strengths Supporting Stellar's Ratings

Balance Sheet Strength

The ratings given by AM Best reflect Stellar’s solid balance sheet strength, characterized as very strong. This assessment stems from Stellar's robust risk-adjusted capitalisation, which is expected to remain at an exceedingly high level, as indicated by the Best’s Capital Adequacy Ratio (BCAR). Stellar's effective use of low underwriting leverage, coupled with strong earnings retention and a thorough reinsurance strategy, enhances its financial stability.

Investment Strategy and Risk Factors

Recently, Stellar transformed its investment portfolio, converting over 80% of its invested assets into a promissory note from the Saudi Arabian Oil Company (SAOC). Although common for captive insurance entities, this strategy has resulted in a more concentrated investment approach, albeit with a robust affiliate backing. Stellar continues to engage in reinsurance to maintain high gross underwriting limits, mitigating credit risk by collaborating with a diverse range of financially sound reinsurers.

Operational Performance Over the Years

In terms of operational outcomes, Stellar has reported commendable results consistently over the past five years, predominantly due to strong underwriting profits without facing significant losses. In a recent analysis, the company exhibited a net-net combined ratio of -21.4%, marking a considerable improvement from the previous year's ratio of 17.3%. These metrics, reflecting Stellar's performance, range from -21.4% to 35.9% over the five-year assessment period. As of 2023, the return on equity stood at 13.9%, largely influenced by the company's substantial capital base. Moving forward to 2024, AM Best anticipates the company's performance to persist at a robust pace, while also acknowledging potential volatility stemming from the captive’s engagement in high-severity, low-frequency losses within its energy segment.

Business Profile and Market Position

Stellar’s role within the broader risk management framework of SAOC is crucial, serving as a single-parent captive aimed at transferring risks inherent in SAOC and its affiliated operations. The segmentation of Stellar’s portfolio reveals a heavy focus on energy-related risks, both onshore and offshore, with approximately 84% of premiums associated with risks in Saudi Arabia. This concentration reflects Stellar's strategic positioning within the energy sector and underscores its commitment to delivering specialized solutions tailored to unique risks.

AM Best's Continued Leadership

AM Best maintains its reputation as the foremost rating agency for alternative risk transfer entities, with an expansive portfolio encompassing over 200 rated vehicles globally. This ongoing evaluation of creditworthiness not only aids in assessing financial viability but also bolsters confidence among stakeholders engaged in the insurance domain.

Frequently Asked Questions

What key ratings were affirmed by AM Best for Stellar Insurance?

AM Best affirmed a Financial Strength Rating of A (Excellent) and a Long-Term Issuer Credit Rating of 'a+' (Excellent).

What factors contribute to Stellar's strong balance sheet?

Stellar’s balance sheet strength is bolstered by robust risk-adjusted capitalisation, low underwriting leverage, and strong earnings retention.

How does Stellar manage its investment risks?

Stellar manages investment risks through a diversified panel of financially strong reinsurers and a strategic focus on a concentrated investment portfolio paired with its SAOC affiliation.

What has been the trend in Stellar's operating results?

Stellar has shown strong operating performance over the past five years, primarily due to substantial underwriting profits with a recent net-net combined ratio of -21.4%.

What is the significance of AM Best in the insurance industry?

AM Best is recognized as a leading rating agency for alternative risk transfer entities, providing critical assessments that influence decision-making in the insurance market.

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