A darker outlook for Sigurd Rück

AM Best has downgraded its outlook for Sigurd Rück AG, the captive reinsurer of Italian oil field services and engineering group Saipem.

The ratings agency has revised its outlook to negative from stable. It affirmed the captive’s financial strength rating of A- (Excellent) and the long-term issuer credit rating (ICR) of “a-” (Excellent), however.

“The revision of the outlooks to negative reflects a deterioration in the creditworthiness of Saipem, and the potential for this to have a negative impact on Sigurd,” Best explained.

It noted that Sigurd’s risk-adjusted capitalisation was at the strongest level, as measured by Best’s capital adequacy ratio.

“AM Best expects Sigurd’s risk-adjusted capitalisation to remain comfortably in excess of the minimum required for the strongest assessment, supported by its low underwriting leverage, conservative investment policy, moderate exposure to catastrophe losses, and comprehensive retrocession programme with a well-rated panel of retrocessionaires,” it added.

However, this was offset by an “elevated concentration and credit risk stemming from the cash pooling agreement that the captive has in place with the Saipem group. Receivables from the Saipem group accounted for 70.0% of Sigurd’s capital at the end of 2020.”

It concludes: “Sigurd has a track record of strong operating performance, evidenced by a five-year (2016-2020) weighted average return-on-equity and combined ratio of 13.6% and 57.8%, respectively. Profitability has been supported by a low and stable expense ratio and a good, albeit volatile, loss ratio. AM Best expects Sigurd’s operating performance to remain supportive of a strong assessment prospectively.”