SINGAPORE: AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “bbb+” of ERGO Insurance Pte. Ltd., Singapore.

The Credit Ratings (ratings) of ERGO Insurance reflect its balance sheet strength, which AM Best categorizes 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, which is the primary insurance arm of Munich Re.

The outlook of the FSR remains stable, while the Long-Term ICR outlook remains negative.

ERGO Insurance’s balance sheet strength assessment is underpinned by risk-adjusted capitalization that remained at the strongest level in 2018, as measured by Best’s Capital Adequacy Ratio (BCAR). Despite operating losses over the past three years (2016-2018) having materially eroded the company’s shareholders’ equity, financial support from the Munich Re group has aided to maintain capital adequacy at an appropriate level.

Other balance sheet factors include the company’s small-sized absolute capital base (USD 14 million as at year-end 2018) and the company’s high reinsurance usage and dependence, as demonstrated by a net premium retention ratio of 46% in 2018. The company continues to benefit from a conservative investment strategy and AM Best’s expectation of 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 since 2016, coupled with increasing expense ratios as the company has sought to non-renew loss-making accounts, have driven operating losses over recent years, with a five-year average combined ratio of 116.1% (2014-2018). Management has continued to implement 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 over the short to medium term.

ERGO Insurance’s business profile is viewed as limited. The company is a small-sized non-life insurer in Singapore, with a market share of less than 1% based on 2018 gross written premium. The company’s portfolio of business continues to exhibit both 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 for 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. While the company continues to execute on a viable turnaround strategy, in conjunction with support from the Munich Re group, execution risk associated with these remedial actions and competitive market conditions in Singapore remain key challenges.