The operating performance of Singapore Reinsurance Corporation (Singapore Re) is assessed as adequate, with a five-year average return-on-equity ratio of 4.7% and combined ratio of 100.5% (2018-2022), comments AM Best.

The company’s underwriting performance has exhibited a level of volatility in recent years due to competitive market conditions and elevated natural catastrophe activity. However, the underwriting performance improved in 2022, supported by a lower loss ratio and expense ratio. Singapore Re’s investment income, which comprises interest, dividend and rental income, continues to provide a sizeable contribution to overall earnings.

Ratings affirmed

AM Best has affirmed Singapore Re’s Financial Strength Rating of ‘A’ (Excellent) and the Long-Term Issuer Credit Rating of ‘a’ (Excellent). The outlook of these credit ratings is ‘Stable’.

The ratings reflect Singapore Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). In addition, the ratings factor in rating enhancement from the company’s ultimate parent, Toronto-headquartered Fairfax Financial Holdings (Fairfax group).

Balance sheet strength

Singapore Re’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which is expected to remain at the strongest level over the medium term. AM Best views the company as having a moderate risk investment portfolio, which is made up of a combination of low-risk assets of cash, deposits and local government bonds, as well as higher-risk assets including non-rated corporate bonds, equities and real estate. The company has a high dependence on fronting and retrocession to increase underwriting capacity and manage exposure to catastrophe accumulations and large single risks. However, this is partially mitigated through its modest catastrophe exposure and the use of well-rated retrocession counterparties.

Business profile

AM Best assesses Singapore Re’s business profile as limited. Singapore Re is a modest-sized non-life reinsurer based in Singapore, writing treaty and facultative business mainly in Asia and the Middle East. The underwriting portfolio has shown an increasing concentration toward the property line over time and is exposed to catastrophe accumulation risks from territories across Asia and the Middle East. The company has high cedant concentration risk, although some of its largest cedants are Fairfax group companies and others that include long-standing relationships.

The rating enhancement from the Fairfax group factors in support of 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.