AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A (Excellent) and Long-Term Issuer Credit Rating (Long-Term ICR) of "a" of Sirius Bermuda Insurance Company Ltd. (Sirius Bermuda) (Bermuda), Sirius International Insurance Corporation (publ) (Sirius International) (Sweden), and its subsidiary Sirius America Insurance Company (Sirius America) (USA). Additionally, AM Best has revised the outlooks to negative from stable and affirmed the Long-Term ICR of "bbb" of Sirius International Insurance Group, Ltd. (SIIG) (Bermuda), and Sirius International Group, Ltd. (SIG) (Bermuda), both non-operating holding companies.
The revision of the outlooks to negative reflects the deterioration in SIIG's operating performance metrics since 2017, primarily attributed to above-average catastrophe events. Additionally, the recently reported debt and liquidity issues of SIIG's ultimate parent company, China Minsheng Investment Group Corp., Ltd. (CMIG), together with its lack of financial transparency, have the potential to lead to increasing pressure on the safeguard mechanisms SIIG has put in place since its listing on the Nasdaq in 2018 to protect its financial strength from the significantly lower credit quality of CMIG. If AM Best were to perceive these safeguard mechanisms, which include solid governance arrangements, as insufficient, or should CMIG fail to be transparent on its financial situation, prompt negative rating action likely would occur.
The ratings reflect SIIG's consolidated balance sheet strength, which AM Best categorises as very strong, as well as the group's strong operating performance, neutral business profile and appropriate enterprise risk management. The ratings of Sirius Bermuda, Sirius International and Sirius America factor in their strategic importance to SIIG.
SIIG's balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), at the strongest level at year-end 2018. Prospective capitalisation is expected to be sufficient to support the group's business plans. The balance sheet strength assessment also factors in SIIG's conservative investment portfolio, adequate financial flexibility as a listed company and good liquidity. Offsetting rating factors include the group's moderate financial leverage and limited fungibility of capital, given the significant portion of consolidated shareholders' equity held in the Safety Reserve in Sweden.
SIIG has a track record of strong technical performance over the cycle, as demonstrated by the group's 10-year (2009-2018) average combined ratio and return on equity of 92.9% and 8.1%, respectively. Nonetheless, underwriting performance has deteriorated since 2017, negatively impacted by catastrophe losses, with SIIG expected to report a combined ratio above 105% for 2019. AM Best will continue to monitor SIIG's ability to execute successfully its business plans, which should lead to improved technical results in the medium term, supported by sound growth and stable earnings in the accident and health (A&H) segment.
Despite an increasingly difficult operating environment, SIIG maintains a good position in its core markets, as an established midsized (re)insurer that leads or co-leads over half of its reinsurance business. SIIG's business mix is well-diversified, with some geographical bias toward North America. Prospectively, AM Best expects the group to continue to enhance its profile and rebalance its underwriting portfolio by cautiously growing its A&H and selected specialty and casualty lines.
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Jessica Botelho-Young, CA
Senior Financial Analyst
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Ghislain Le Cam, CFA, FRM
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Manager, Public Relations
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Director, Public Relations
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