AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a+” (Excellent) for Stellar Insurance, Ltd., a Bermuda-based subsidiary of the Saudi Arabian Oil Company (SAOC). The outlook for both ratings is stable, a news release noted.
The affirmation is based on Stellar’s robust balance sheet, strong operating performance, neutral business profile, and effective enterprise risk management. The insurer’s balance sheet strength is supported by its risk-adjusted capitalization, which AM Best expects to remain at the highest level. This assessment is bolstered by low underwriting leverage, strong earnings retention, and a comprehensive reinsurance program.
In December 2024, Stellar restructured its investment portfolio, converting over 80% of its invested assets into a promissory note from its parent company, SAOC. While this approach aligns with typical strategies for captive insurers, it has increased asset concentration. However, the financial strength of SAOC mitigates this risk. Stellar’s reliance on reinsurance for high gross underwriting limits is offset by its use of a diversified and financially robust panel of reinsurers.
AM Best said Stellar has consistently demonstrated strong operating performance, highlighted by five years of profitable underwriting. The company reported a net-net combined ratio of -21.4% in 2023, its best result in a five-year range of -21.4% to 35.9%. Return on equity stood at 13.9% in 2023, reflecting its large capital base. AM Best anticipates continued strong performance in 2024, although exposure to high-severity, low-frequency losses in its energy-focused insurance program could lead to future volatility.
The news release noted that Stellar plays a key role in SAOC’s risk management, providing insurance solutions for risks arising from the operations of SAOC and its affiliates. Its portfolio is concentrated, with most premiums tied to energy property risks and 84% of its insured risks located in Saudi Arabia.
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