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A.M. Best affirms credit ratings of Stellar Insurance, Ltd.

Jessica Combes

A.M. Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a" of Stellar Insurance, Ltd. (Stellar) (Bermuda), a subsidiary of Saudi Arabian Oil Company (Saudi Aramco), the state-owned oil company of Saudi Arabia. The outlook of these Credit Ratings (ratings) remains stable.

The ratings reflect Stellar's balance sheet strength, which A.M. Best categorises as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).

Stellar' balance sheet strength is supported by risk-adjusted capitalisation at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR). A.M. Best expects Stellar' risk-adjusted capitalisation to remain at the strongest level, supported by low underwriting leverage and a comprehensive reinsurance programme. The balance sheet strength assessment also takes into account the credit profile of Saudi Arabia.

Saudi Aramco has strengthened Stellar's capital position and enhanced its underwriting capacity by allowing the captive to retain all profits generated since its incorporation in 2001. Capital requirements as per BCAR are driven largely by investment risk, as Stellar holds a significant proportion of assets in funds of varying liquidity and duration. An offsetting rating factor remains the captive's reliance on reinsurance to be able to provide high limit energy covers for its parent's insurance needs; however, this is mitigated partly by Stellar's diversified panel of financially strong reinsurers.

Stellar's strong operating performance is driven primarily by robust underwriting results, as demonstrated by a five-year average combined ratio of 18.3%. Prospective performance remains subject to volatility due to the captive's exposure to high severity, low frequency losses in its energy programme. Stellar partly mitigates its exposure to peak risk via the use of non-proportional reinsurance.

Stellar's business profile and ERM capabilities benefit from the captive's integration to its parent's risk management framework. As a single parent captive, its purpose is to provide financial risk transfer solutions for risks emanating from Saudi Aramco's operations. Stellar's business mix consists of energy onshore and offshore property, general liability risks, as well as associated business interruption cover.

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Publication:CPI Financial
Date:Oct 8, 2018
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