Best Affirms Singapore Re ‘A-‘ Rating

September 19, 2006

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating (ICR) of “a-” of Singapore Reinsurance Corporation Ltd. with a stable outlook.

“The ratings reflect the company’s continued improvement in capitalization, established international market presence and improvement in underwriting margin. Additional comfort is given by management’s focus on further strengthening its capital,” said Best.

The rating agency also noted that “an increase in the local capital adequacy ratio to 345 percent and a decrease in net underwriting leverage to 0.2 times in 2005 both demonstrated the continued improvement in capitalization of Singapore Re. The completion of a rights issue in the second quarter of 2006 helped the company retain its current year net profit as well as transform retained earnings into paid-in capital, further strengthening the company’s capitalization.

“Singapore Re has an established international market presence. Singapore Re used to generate over 90 percent of its business from Singapore. In recent years, the company has focused on expanding its business to overseas markets. In terms of gross premium written, the contributions from Asian and overseas markets have gradually increased to over 30 percent in 2005 from less than 10 percent in 2001.”

Singapore Re’s overall loss ratio improved to 53 percent in 2005 from 66 percent in 2004. The improvement is attributed to the more favorable underwriting result of Bilateral Cessions. After the termination of the Voluntary Cessions market agreement at the year end of 2004, the company signed the Bilateral Cessions market agreement with the selected ceding companies in Singapore. This new type of business has allowed the company to be more flexible on risk selection, and therefore, provides better profitability. Besides, Singapore Re’s investment income has also made a significant contribution to the bottom line of the company’s overall operating results.”

However, Best noted that a deteriorating expense ratio and a decreasing premium trend should be considered as offsetting factors. “Singapore Re experienced an abrupt increase in its expense ratio in 2005 due to the lower volume of net premiums written,” said the report. “The company’s management expense has been lowered to SGD 5.0 million (USD 3.0 million) in 2005 from SGD 5.7 million (USD 3.4 million) in 2004. However, a large proportion of its underwriting expense was net commission expense, which amounted to SGD 13.5 million (USD 8.1 million). It would be a challenge for the company to lower its net commission expense as the degree of success depends on the overall market environment and the bargaining power of the company with both the reinsurers and the ceding companies.”

In addition Best indicated: “Singapore Re’s gross premiums written fell by 23 percent in 2005. Although Singapore Re is now expanding its business to overseas markets, in particular in India and China, the company is still lacking enough premium growth to generate a turnaround of its decreasing premium trend. For the first quarter of 2006, gross premiums written continued to drop by 7 percent.”

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