Saudi oil company captive has financial strength rating affirmed

Saudi Arabian Oil Company’s Bermuda-based captive insurance company has had its A (Excellent) financial strength rating affirmed.

Ratings agency AM Best said Stellar Insurance’s rating reflected the company’s very strong balance sheet strength and its strong operating results over the past five years.

AM Best said these results were mainly driven by robust underwriting profits in the absence of large losses, evident by a five-year weighted average combined ratio of 20.7%.

“AM Best expects performance in 2023 and prospectively to remain strong, albeit subject to potential volatility due to the captive’s exposure to high severity, low frequency losses in its energy programme,” the agency said.  

It added that the rating actions – which included an upgrade of its credit rating to A+ from A - reflected the company’s strengthening balance sheet fundamentals, supported by a consistently strong operating performance and the improved credit quality of SAOC.

“Stellar’s capital base has grown steadily over time, with earnings being retained fully since the company’s incorporation in 2001,” AM Best said. “This has enabled the company to increase its underwriting capacity gradually. Stellar’s capital requirements within the BCAR model are driven largely by investment risk and catastrophe risk. Investment risks stem from the company’s large fixed-income and mutual fund holdings, while catastrophe risk is driven by the company’s large per risk underwriting exposure.

“An offsetting balance sheet strength factor is the captive’s reliance on reinsurance to provide high gross underwriting limits. The credit risk associated with reinsurance is mitigated partially by Stellar’s use of a diversified panel of financially strong reinsurers.”

It added: “Stellar’s business profile assessment reflects the key role it plays in SAOC’s overall risk management framework. As a single-parent captive, Stellar’s purpose is to provide transfer solutions for risks emanating from SAOC and its affiliates’ operations.

“Stellar’s portfolio is concentrated by line of business, with the majority of premiums represented by energy onshore and offshore property risks, as well as by geography with approximately 92% of premiums associated with risks located in Saudi Arabia.”