Rating agency AM Best has upgraded Singapore Re’s Financial Strength Rating to A (Excellent) from A- (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) from “a-” (Excellent), and gave them a stable outlook.
According to the rating agency, they reflect Singapore Re’s balance sheet strength, which AM Best assessed as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
Additionally, AM Best said that the ratings factor in rating enhancement from the company’s ultimate parent, Fairfax Financial Holdings Limited (Fairfax group).
AM Best also noted that Singapore Re’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which is expected to remain at the strongest level over the medium term.
It added that the company’s financial flexibility and capital management benefit from its ultimate ownership by the Fairfax group,
AM Best wrote: “The ratings upgrade reflects AM Best’s assessment of increased rating enhancement from the Fairfax group. The rating enhancement factors in explicit support in the form of a parental guarantee and implicit support from the group, including corporate governance, as well as access to shared resources and services across various business functions.
“Despite Singapore Re’s operations accounting for a small component of the Fairfax group’s consolidated revenue and earnings, the company is considered important to the group’s international expansion plans and provides access to local and regional business.”
According to the announcement, AM Best views Singapore Re as having a moderate risk investment portfolio, and noted the company’s high usage of, and dependence on, retrocession to increase underwriting capacity and manage exposure to cat accumulations and large single risks.
Yet, the credit risk is mitigated by the use of well-rated retrocession counterparties, the rating agency added.
AM Best assessed Singapore Re’s operating performance as adequate, with a five-year average return-on-equity ratio of 3.9% (2017-2021).
It noted that the reinsurer’s underwriting performance improved marginally in 2021 and that investment income continues to contribute positively in operating earnings
Overall, it highlighted, Singapore Re’s net profit showed a significant improvement in 2021 compared with the prior year, supported mainly by realised gains on the disposal of investment properties.
According to AM Bet’s announcement, this latest rating action is the result of an accepted appeal from Singapore Re.