Stellar Insurance credit results bolstered by comprehensive reinsurance program


Stellar Insurance credit results bolstered by comprehensive reinsurance program | Insurance Business America

Ratings also note company’s reliance on reinsurance to support high gross underwriting limits


Kenneth Araullo

Stellar Insurance, a captive insurance firm owned by Saudi Arabian Oil Company (SAOC), has received a rating upgrade from AM Best following its strong performance across several key metrics, including low underwriting leverage, full earnings retention, and a comprehensive reinsurance program.

The upgrade also reflects the company’s consistent performance and its strategic role within SAOC’s risk management framework.

Stellar’s reliance on reinsurance to support high gross underwriting limits was noted. However, the associated credit risk is partly mitigated by Stellar’s engagement with a diverse panel of financially strong reinsurers, it was suggested.

This success is also largely attributed to significant underwriting profits and the absence of large losses, as indicated by an impressive weighted average combined ratio of 20.7% from 2018 to 2022. AM Best anticipates this trend of strong performance to continue into 2023 and beyond, despite potential volatility due to the captive’s exposure to high severity, low frequency losses in its energy program.

The business profile of Stellar Insurance is closely tied to its function within SAOC’s risk management. As a single-parent captive, Stellar primarily offers risk transfer solutions for operations related to SAOC and its affiliates. The insurer’s portfolio is predominantly composed of energy onshore and offshore property risks, with around 92% of premiums linked to risks located in Saudi Arabia.

AM Best has upgraded Stellar’s long-term issuer credit rating to “a+” (Excellent) from “a” (Excellent), while affirming its financial strength rating at A (Excellent). These ratings, with a stable outlook, are based on Stellar’s very strong balance sheet, strong operating performance, neutral business profile, and appropriate enterprise risk management.

The upgrade is reflective of Stellar’s improving balance sheet fundamentals, buoyed by consistent operating performance and the enhanced credit quality of its parent company. Stellar’s balance sheet strength is notably supported by its risk-adjusted capitalization, which is at the strongest level as per Best’s Capital Adequacy Ratio.

The capital requirements within Best’s Capital Adequacy Ratio (BCAR) model for Stellar are also primarily driven by investment risk from its sizable fixed-income and mutual fund holdings, and catastrophe risk due to its large per risk underwriting exposure.

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