AM Best Removes From Under Review With Negative Implications and Affirms Credit Ratings of Sigurd Rück AG
AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of "bbb+" (Good) of Sigurd Rück AG (Sigurd) (Switzerland). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect Sigurd's balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management. The ratings also factor, in the form of drag, Sigurd's association with its parent company, Saipem S.p.A. (Saipem). Sigurd is a captive reinsurer of Saipem and a key element of the group's risk management framework.
The rating action reflects the improvement in Saipem's credit profile, following the completion of a capital injection in the form of a rights issue in July 2022.
Sigurd has significant exposure to the credit risk associated with Saipem, notably through a cash-pooling agreement with the group. As at 31 December 2021, Sigurd's funds allocated to the cash-pooling with Saipem represented 59.8% and 78.6% of the company's total assets and capital and surplus, respectively. AM Best expects these ratios to decrease in the second half of 2022 as Sigurd rebalances its investment portfolio in an effort to actively reduce its credit exposure to Saipem. The cash-pooling agreement is considered a partially offsetting factor to Sigurd's very strong balance sheet strength assessment. The company's balance sheet strength remains underpinned by its risk-adjusted capitalisation, which is comfortably above the minimum required for the strongest assessment, as measured by Best's Capital Adequacy Ratio (BCAR).
Sigurd has a track record of strong operating performance, evidenced by a five-year (2017-2021) weighted average return-on-equity and combined ratio of 13.0% and 44.9%, respectively (as calculated by AM Best). Profitability has been supported by a low and stable expense ratio and a god, albeit volatile, loss ratio. Operating profitability is expected to decline in 2022 as a result of a large claim incurred in the first half of the year. However, AM Best expects Sigurd's operating performance to remain supportive of a strong assessment prospectively.
Sigurd's business profile, which AM Best assesses as neutral, benefits from geographic and product diversification derived from Saipem's wide-ranging commercial activities.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best's Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
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