A.M. Best Co. has assigned an initial financial strength rating of A- (Excellent) to Singapore Reinsurance Corporation Ltd., with a “stable” outlook.
“The current rating reflects the company’s superior financial strength, resilient earnings profile and well-established presence in the Singapore market. The rating also considers the significant benefits derived from the unique status of being a quasi-national reinsurer,” said Best.
Best cited the company’s solvency margin, 317 percent, and its net underwriting leverage ratio, 0.36, as giving it “the substantial cushion that exists.” It also noted that “throughout the Asian Crisis and the recent economic downturn, Singapore Re has been able to generate consistent profits to service its implicit dividend obligation. In addition, its combined ratio of 96.8% is superior to those of other regional insurers.”
Singapore Re is also benefiting from the hard market for reinsurance, and expects to post a gross premium income increase of 7.8% for the year 2002 to around $41.6 million. It has a 20 percent market share in Singapore.
Best indicated, however that the “market is considered to be over-serviced with about 20 reinsurers competing over USD 130 million in gross premiums,” but it still expects the company to “remain an important insurer, owing to its long-term business relationships and significant ownership ties with the direct market.”
It cited the company’s “risk concentration” as an offsetting factor, but indicated that this is “mitigated by the absence of natural catastrophe risks in Singapore.” Best’s report also noted that the company’s “lack of competitive advantage in the international arena and deteriorating underwriting margin,” together with the “unfavorable investment environment” are additional offsetting factors that are expected to “put pressure on overall earnings.”
“The company’s business profile on a global scale is less established than those of other reinsurers, owing to its underwriting policy of avoiding the high risk markets since 1991. Consequently, the scope for growth is limited, considering the existing underwriting capacity,” said Best.
In the domestic markets “adverse developments in the motor and workers’ compensation business, Singapore Re’s underwriting margin has deteriorated from 14.7% in 1998 to 1.7% in 2001. Low interest rates, coupled with depressed equity prices, will also put pressure on investment earnings,” said Best.
The rating agency said it would “continue to monitor the developments in the aforementioned business lines, as well as Singapore’s financial markets, to ensure that the company’s capitalization is maintained at a level commensurate with the current rating.”