AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of 'bbb+' of ERGO Insurance Pte. Ltd. (ERGO Insurance) (Singapore).
The outlook of the FSR is stable, while the Long-Term ICR outlook is negative.
The Credit Ratings (ratings) of ERGO Insurance reflect its balance sheet strength, which AM Best categorises as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM). The ratings also factor rating enhancement from the company's ultimate parent, Munich Reinsurance Company (Munich Re or the Munich Re group). ERGO Insurance is a wholly owned subsidiary of ERGO Group AG (ERGO Group), which is the primary insurance arm of Munich Re.
ERGO Insurance's balance sheet strength assessment is underpinned by risk-adjusted capitalisation that was categorised as strongest in 2019, as measured by Best's Capital Adequacy Ratio (BCAR). Despite operating losses over the past few years having materially eroded the company's shareholders' equity, financial support from the Munich Re group has helped ERGO Insurance maintain capital adequacy at an appropriate level. Other balance sheet considerations include the company's small-size absolute capital base (SGD 19.5 million or USD 14.5 million at year-end 2019) and the company's high reinsurance usage and dependence, albeit premium retention is expected to gradually trend upward going forward. In addition, the company continues to benefit from a conservative investment strategy and ongoing strong financial flexibility provided by the Munich Re group.
AM Best views the company's operating performance as marginal. Poor claims experience from motor and workers' compensation business, coupled with increasing expense ratios as the company has sought to non-renew loss-making accounts, have driven a five-year average combined ratio of 125.3% (2015-2019). Whilst investment operations have contributed positively to overall earnings, technical results have led to pre-tax operating losses in each year since 2016. Over the past two years, management has made progress in implementing a program of remedial actions in conjunction with support provided by the Munich Re group, with a target of returning the company to a position of technical and operating profitability in the near term.
AM Best views ERGO Insurance's business profile as limited. The company is a non-life insurer in Singapore, with a market share of approximately 1%, based on 2019 gross written premium. The company's portfolio of business continues to exhibit line of business and geographical concentration.
The company receives rating enhancement from its ownership and integration with the Munich Re group. ERGO Insurance also benefits from implicit and explicit support from the Munich Re group, including recent and planned capital injections, as well as reinsurance protection.
The negative outlook on the Long-Term ICR reflects AM Best's expectation of continued pressure on the company's operating performance and balance sheet strength fundamentals over the near term. Whilst the company continues to execute a viable turnaround strategy, in conjunction with support from the Munich Re group, persisting competitive market conditions and disruption arising from the COVID-19 pandemic results in heightened execution risk.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.