SINGAPORE–(COMMERCIAL THREAD) –AM Best revised the outlook for the long-term issuer credit rating (long-term ICR) from stable to negative and confirmed the financial strength rating (FSR) of B ++ (good) and the long-term ICR of “bbb + ”(Good) from ERGO Insurance Sdt. Ltd. (ERGO Insurance) (Singapore). The outlook for the FSR is stable.
The ratings reflect the strength of ERGO Insurance’s balance sheet, which AM Best considers strong, as well as its marginal operational performance, limited business profile and proper management of business risks. The ratings also take into account the improved ratings of the company’s ultimate parent, Munich Reinsurance Company (Munich Re or the Munich Re group). ERGO Insurance is a 100% subsidiary of ERGO Group AG, which is Munich Re’s main insurance branch.
The revision of the long-term ICR outlook from stable to negative follows reduced volatility and pressure on the strength of the company’s balance sheet and the fundamentals of operating performance. Looking ahead, AM Best expects the strength of ERGO Insurance’s balance sheet to remain supported by risk-adjusted capitalization at least at a very high level, as measured by Best’s capital adequacy ratio (BCAR). . While the company is expected to continue to face headwinds in delivering its targeted turnaround strategy due to persistent competitive market conditions and the COVID-19 pandemic, its underwriting and operating results are expected to improve. improve in the medium term.
AM Best believes that ERGO Insurance’s balance sheet is strong. Despite operating losses over several years that have significantly eroded the company’s equity, the financial support of the Munich Re group has helped to strengthen the capital adequacy. Other balance sheet considerations include the company’s high usage and reliance on reinsurance, although premium retention is expected to gradually increase in the future. In addition, the company continues to benefit from a prudent investment strategy and continued strong financial flexibility provided by the Munich Re group.
AM Best considers the operational performance of the company to be marginal. Despite a noticeable improvement in the company’s loss ratio over the past few years, as it sought to revise the price and / or not renew underperforming businesses, the combined ratio remained under pressure due to reducing the size of the company, which increased the expense ratio. While the investment operations have contributed positively to the overall result, the technical results have led to operating losses before tax every year since 2016. A corrective action program continues to be implemented by the management of the company in collaboration with the parent group, with the objective of putting the company back in a position of technical and operational profitability in the medium term.
AM Best considers the commercial profile of ERGO Insurance to be limited. The company is a non-life insurer in Singapore, with a market share of around 1%, based on gross premiums written in 2020. The company’s business portfolio continues to show concentration by industry. activity and geography.
The company benefits from an improvement in its rating thanks to its ownership and integration with the Munich Re group. ERGO Insurance also benefits from the implicit and explicit support of the Munich Re group, including recent and planned capital injections, as well as ‘reinsurance protection.
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