A.M. Best Co. announced that it has affirmed the financial strength rating of “A-” (Excellent) and the issuer credit rating of “a-” of Singapore Reinsurance Corporation Limited (Singapore Re) with a stable outlook.
“The ratings reflect the company’s well established local presence, prudent capitalization and consistent investment performance with a high liquidity portfolio,” said Best.
“Singapore Re is the largest player in the reinsurance market in Singapore with approximately 21 percent of the reinsurance market share in terms of net premiums written as of the fiscal year end of 2003,” the bulletin continued. “Despite the over crowded market in Singapore, the company’s market position remains strong given the close rapport and long-term business relationships developed with the domestic general insurers.”
Best noted that according to its Capital Adequacy Ratio, which measures capitalization on a risk-adjusted basis, the company maintains a solid capital position, “with a low net premium leverage ratio of 0.42 times in fiscal year 2003. The local solvency ratio for fiscal year 2003 improved to 308 percent from 286 percent in 2002.”
Best also indicated that “Singapore Re’s prudent investment strategy of investing mostly in fixed income instruments has enabled it to generate consistent returns with limited volatility. The total investment income recorded as of the fiscal year 2003 was SGD 16 million (USD 9 million), compared with SGD 12 million (USD 7 million) in 2002. The company has maintained strong operating cash flows, supported by the company’s liquid investment portfolio with 13 percent of its total assets in cash and 47 percent in government bonds or fixed income investments.”
Offsetting factors, cited by Best, include “intense market competition, high dividend payout and the termination of the voluntary cession market agreement with local insurers. With the fierce competition in the reinsurance market in Singapore, the company faces challenges to generate high underwriting profits to service its implicit dividend obligation. The dividend payout ratio stood at 72 percent in fiscal year 2003.
“For the fiscal year 2003, approximately 57 percent of the gross premium income was generated from the voluntary cessions business. The termination of the Voluntary Cession market agreement between the company and the General Insurance Association of Singapore effective by the end of 2004 may cause a negative impact to the income stream of the company, although the company has pursued bilateral cession arrangements with individual insurance cedants to maintain its business portfolio.”
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