Singapore Reinsurance Corporation Gets Positive Ratings from AM Best

AM Best's Recent Credit Ratings Affirmation for Singapore Re

AM Best has recently confirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a" (Excellent) for Singapore Reinsurance Corporation Limited (Singapore Re). The outlook for these ratings is stable, indicating a consistently strong performance by the company in the insurance market.

Understanding Singapore Re's Financial Strength

The affirmation from AM Best reflects a comprehensive assessment of Singapore Re's balance sheet strength, which is recognized as strong. This assessment is backed by their solid operating performance, well-defined enterprise risk management, and a limited but manageable business profile. In particular, the ratings benefit from support provided by Singapore Re's ultimate parent company, Fairfax Financial Holdings Limited (TSX: FFH), which enhances the overall stability of Singapore Re.

Strong Capitalization with Robust Investments

Singapore Re values its balance sheet strength through its risk-adjusted capitalization, expected to maintain the strongest level in the foreseeable future, as indicated by Best’s Capital Adequacy Ratio (BCAR). The company’s strategic investment portfolio primarily consists of cash, deposits, and fixed-income securities, with notable exposure to equities. To further bolster its underwriting capacity, Singapore Re effectively employs retrocession practices to manage risks related to catastrophes and large accumulations.

Stability Through Quality Reinsurers

The retrocession panel from which Singapore Re collects recoverables holds an excellent credit quality, predominantly associated with highly rated counterparties. This positive relationship enhances the company’s financial flexibility and overall resilience, aided by the supportive structure of Fairfax.

Analysis of Operational Performance

In terms of operational success, AM Best has evaluated Singapore Re’s performance as adequate, characterized by strong underwriting results and substantial investment gains. While historical performance reflected some volatility due to intense competition and natural catastrophes, the results have significantly improved lately. This positive trend is attributed to favorable claims experiences and heightened business volumes.

For the period in question, Singapore Re reported an operating profit of SGD 7.3 million, showing a decline from the SGD 48 million registered the previous year. This drop was primarily linked to a one-time reserve adjustment associated with the IFRS 17 premium recognition guideline. Fortunately, the increase in net investment income somewhat mitigated this impact, and the operational metrics for 2024 have shown a return to targeted profitability levels.

Geographic and Product Diversification

Singapore Reinsurance Corporation Limited operates as a non-life reinsurer, primarily engaging in treaty and facultative business throughout Asia and the Middle East. The company’s market expansion provides adequate diversification, with significant activity centered in major markets like Singapore and India.

Managing Cedant Concentration Risks

Despite the geographic diversity, Singapore Re does encounter elevated cedant concentration risks, partly offset by long-standing relationships with key clients. The majority of the largest cedants are from the Fairfax group or deeply rooted affiliations, minimizing the associated risks.

The Role of Fairfax in Enhancing Credit Ratings

The rating uplift from Fairfax arises from both explicit and implicit support within the group. This includes access to a wide range of resources and services that facilitate various business operations. Although Singapore Re constitutes a minor segment of Fairfax's consolidated revenue, it plays a crucial role in the group’s strategic plan for international expansion.

Future Outlook and Expectations

Looking ahead, AM Best predicts that Singapore Re’s operational performance will uphold its adequacy, continuing to be supported by solid business growth and judicious underwriting measures. This positive trajectory reflects Singapore Re’s robust operational strategies and commitment to managing risk effectively.

Frequently Asked Questions

What recent ratings has AM Best given to Singapore Re?

AM Best has affirmed a Financial Strength Rating of A (Excellent) and a Long-Term Issuer Credit Rating of "a" (Excellent), with a stable outlook.

How does Singapore Re's partnership with Fairfax influence its ratings?

Fairfax provides both explicit and implicit support, enhancing Singapore Re's credit ratings through shared resources and strategic alignment.

What factors contribute to Singapore Re's strong balance sheet strength?

Key factors include robust capitalisation, excellent credit quality of its retrocession panel, and good financial flexibility.

What challenges has Singapore Re faced historically?

The company has experienced volatility in underwriting performance due to competitive pressures and natural catastrophe activities, although it has improved in recent years.

What is Singapore Re's investment strategy?

Singapore Re focuses on cash, deposits, and fixed-income securities, while strategically utilizing equities to enhance its investment portfolio.

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