AM Best affirms credit ratings for Singapore Re

Global credit ratings agency AM Best has affirmed the Financial Strength Rating of ‘A-’ (Excellent) and the Long-Term Issuer Credit Rating of ‘A-’ of Singapore Reinsurance (Singapore Re). The outlook of these credit ratings is stable.

The agency said the ratings reflect Singapore Re’s balance sheet strength, which AM Best categorises as strong, and its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

“Singapore Re’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation that remains at the strongest level, as measured by Best’s Capital Adequacy Ratio,” said AM Best.

“Despite an elevated dividend payout ratio over the past five years, retained earnings have remained sufficient to support new business growth over this period.

“Other balance sheet factors 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 said it views Singapore Re’s operating performance as adequate, with the company having reported a five-year average return on equity ratio of 4.9 percent (2014 to 2018). Underwriting performance has exhibited a level of volatility and increased pressure over recent years, driven by continued competitive conditions and increased natural catastrophe activity, with a five-year average combined ratio of 101.1 percent (2014 to 2018). The company’s overall earnings remain supported by investment operations, with a five-year average net investment return (including gains/losses) of 3.3 percent.

AM Best said it views Singapore Re’s business profile as neutral. The company is a regional non-life reinsurer based in Singapore, with a modest-sized gross written premium base of SGD 208 million ($193 million) in 2018.

“The company remains somewhat reliant on its long-standing relationships with a select number of local cedants, including some shareholders of Singapore Re, which has enabled preferential access to profitable business over a number of years,” said AM Best.

“AM Best views that any deterioration in these relationships over time would likely place pressure on the company’s business profile assessment.”
AM Best said it 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 risks in conjunction with its Own Risk and Solvency Assessment framework.

“A partially offsetting factor remains the company’s high level of cedant concentration, largely reflecting the volume of business that emanates from a small number of local cedants with which Singapore Re has long-standing relationships.”