Rating agency AM Best has revised its outlook for Singapore Reinsurance Corporation Limited (Singapore Re) from stable to negative, reflecting increasing pressure on the firm’s business profile assessment.
In particular, analysts noted that Singapore Re may be overly reliant on a small number of concentrated local cedants, some of which have ownership stakes in the reinsurer.
In addition, AM Best believes Singapore Re’s expansion across the regional reinsurance market in recent years has increased volatility in its underwriting performance amid competitive market conditions and increased exposure to natural catastrophe activity.
That said, the rating agency views Singapore Re’s operating performance as adequate, with the company having reported a five-year average return-on-equity ratio of 4% (2015-2019).
However, underwriting performance has demonstrated increased volatility over recent years with the company’s combined ratio exceeding 105% in both 2018 and 2019.
Overall earnings remain driven by investment operations, which have generated a five-year average net investment yield of 2.7% (2015-2019).
During the first six months of 2020, Singapore Re reported a pre-tax operating profit of SGD 4.4 million, but its underwriting result was in a loss position, driven in part by claims experience and reserving related to the COVID-19 pandemic.
AM Best did affirm Singapore Re’s Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-”.
This was based on the reinsurer’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).