AM Best has decided to downgrade the credits of Sigurd Rück AG (Sigurd) (Switzerland) and place them under review with negative implications, due to its association with parent company Saipem S.p.A.
Earlier this month, Saipem warned it would report a 2021 loss of over one-third of its equity, following €1 billion of cost overruns for projects including an offshore wind farm and onshore engineering and construction contracts.
Sigurd is a captive reinsurer of Saipem and is considering by AM Best to be a key element of the group’s risk management framework.
The rating agency has revealed that Sigurd’s Financial Strength Rating will be downgraded to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating to “bbb+” (Good) from “a-” (Excellent).
The ratings reflect Sigurd’s balance sheet strength, which AM Best continues assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
Analysts explained that the downgrade has been made in light of the recent deterioration in Saipem’s credit fundamentals, and in particular concerns around its short-term liquidity and solvency positions.
AM Best notes that Sigurd has significant exposure to credit risk associated with Saipem, notably through a cash-pooling agreement with the group.
As at 31 December 2020, Sigurd’s funds allocated to the cash pooling with Saipem represented 52.6% and 70.0% of the company’s total assets and capital and surplus, respectively.
“The ratings have been placed under review with negative implications as the deterioration of Saipem’s credit fundamentals has the potential to impact Sigurd’s balance sheet strength negatively,” AM Bet stated.
“The ratings are expected to remain under review until Saipem publishes its results for 2021 and clarifies its strategic direction, and until AM Best has assessed the impact of the Saipem group’s creditworthiness on Sigurd’s rating fundamentals.”