AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a+” (Excellent) of Stellar Insurance, Ltd. (Stellar) (Bermuda), an indirectly wholly owned subsidiary of the Saudi Arabian Oil Company (SAOC). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Stellar’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 reflect, in the form of rating enhancement, Stellar’s strategic importance to its parent, SAOC.

Stellar’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects Stellar’s risk-adjusted capitalisation to remain at the strongest level, supported by its low underwriting leverage, full earnings retention and a comprehensive reinsurance programme. The company’s investment strategy has been simplified, with approximately 80% of assets held in the form of a promissory note from its parent company. Similar to other captive insurers, this strategy increases investment concentration. Terms of the note allows for quick access to funds; liquidity is supplemented by the remaining assets being held in high quality fixed interest securities. Stellar remains reliant on reinsurance to provide high gross underwriting limits, although the associated counterparty risk is mitigated by the use of a diversified panel of financially strong reinsurers.

Stellar has demonstrated strong operating results over recent years, driven by robust underwriting profits in the absence of large losses. The company’s three-year (2022-2024) weighted average IFRS 17 net/net combined ratio as calculated by AM Best was 2.4%, including the impact of a large reserve release in 2023, reflecting the company’s conservative approach to loss reserving. Stellar’s return on equity in 2024 was 12.8%, skewed by its very large capital base. AM Best expects the company’s performance to remain strong, although subject to potential volatility in the long term due to its exposure to high severity, low frequency losses in its energy programme.

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 originating 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 89% of premiums associated with risks located in Saudi Arabia.

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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