Standard & Poor's Affirms Rating of Sirius International

12/14/2010

Major Rating Factors

Strengths:

  • Historically strong operating performance.
  • Very strong capitalization.
  • Improving competitive position as a member of the White Mountains
  • Insurance Group Ltd.


Weaknesses:

  • Potential volatility of underwriting results through group reinsurance agreements. 


Rationale

The ratings on Stockholm-based reinsurer Sirius International Insurance Corp. (Sirius) reflect its core status as a member of the Bermuda-based White Mountains Re Group Ltd. (WMRe, core operating entities rated A-/Stable/--).As a core entity of WMRe, the ratings and outlook on Sirius would be affected by any change in the ratings or outlook on WMRe. Standard & Poor's Ratings Services considers the company's operations as a significant strength for the ratings on WMRe.

On a stand-alone basis, the key rating factors include Sirius' very strong capitalization, historically strong operating performance, and its improved competitive position as a member of the Bermuda-based White Mountains Insurance Group Ltd (WM group; BBB-/Stable/--). The ratings are constrained, however, by enhanced volatility through assumed reinsurance agreements with other parts of WMRe and the WM group, and the integration of White Mountains Re Bermuda Ltd. (WMRe Bermuda) into Sirius. We consider these developments as having the potential to dilute the strong and consistent operating performance of Sirius' core operations.

We consider Sirius to be core to WMRe, reflecting the breadth of the company's financial and operational integration within the group and ultimately within the WM group, as illustrated by the demonstrable fungibility of capital and risk within the group. In 2009, 45% of group premiums consisted of quota shares from other WM group entities--Esurance Insurance Co. and White Mountains Reinsurance Company of America (WMRe America). This proportion shrank to 32% in the first half of 2010, as the Esurance cession declined. In our opinion, it will further reduce in 2011 when the amount of WMRe America business taken is also expected to decline. Sirius' integration of WMRe Bermuda in February 2010 will in part offset the 2010-2011 reduction in premiums implied by the quota share reductions. However, these strategic developments highlight the potential volatility of business and results reported under the Sirius banner.

The enhanced resulting volatility and potential concentration of catastrophe risk deriving from the Bermudan business integration and intra-group quota shares is recognized by WMRe and the WM group. In 2009, $200 million was injected into Sirius by its parent group to counteract the potential volatility. Overall, we regard Sirius' capitalization as very strong, underpinned by its very strong risk-based capital adequacy according to Standard & Poor's proprietary model.

We view Sirius' historical operating performance as strong. Its combined ratio has outperformed the reinsurance market average each year since 1997, returning an operating profit in every year save 2001. 2009 saw the second-best result in the group's history, both in terms of profitability (Swedish krona [SEK] 1.57 billion) and combined ratio (86%). In the first quarter of 2010, Sirius suffered disproportionately from the Chilean earthquake. However, in 2010, good results elsewhere reduced the first half combined ratio to 102%, with the prospect of technical profitability over the year given favorable catastrophe experience in the second half of the year. 

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