25 November 2016Analysis

AM Best assigns financial strength rating to Saipem’s captive reinsurer

Ratings agency AM Best has assigned Sigurd Rück, the captive reinsurer for Italian multinational group Saipem, a financial strength rating of A- (Excellent).

Saipem provides services to the oil and gas sector, including procurement, construction and installation of pipelines, as well as drilling.

The outlook of this rating is stable, and reflects the company’s excellent risk-adjusted capitalisation, very strong operating performance and its importance as a risk management tool for the Saipem group.

“Sigurd’s risk-adjusted capitalisation is excellent and is supported by strong internal capital generation, conservative investment and reserving policies, a moderate exposure to catastrophe losses, as well as a comprehensive retrocession programme,” said AM Best.

“A partly offsetting factor is represented by Sigurd’s relatively small capital base, which exposes its risk-adjusted capitalisation to some degree of volatility. Furthermore, a cash pooling agreement in place with the Saipem group exposes Sigurd’s assets to a certain degree of concentration risk.”

According to AM Best, Sigurd also has a track record of very strong operating results, as demonstrated by an average five-year return on capital of 22 percent.

The profitability of the company is primarily driven by its underwriting account, which has produced an excellent five-year average combined ratio of 54 percent, between years 2011 to 2015.

AM Best suggests that Sigurd’s operating performance is protectively likely to deteriorate as a result of decreasing premium rates and challenging market conditions affecting the Saipem group, although the ratings agency expects the captive to maintain a good level of profitability.