These ratings reflect Energas’ balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM). In addition, the ratings factor a neutral impact from the company’s 100% ownership and integration with
The company’s risk-adjusted capitalisation remains at strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), supported by Energas’ low underwriting leverage, conservative investment strategy and strong liquidity. Investment assets consist of mainly cash and deposits held at well-established domestic financial institutions, and investment-grade debt securities. An offsetting factor is Energas’ high exposure to low frequency-high severity loss events given the nature of the company’s energy portfolio. Nonetheless, the significant underwriting risks are managed through the company’s low net retention and comprehensive reinsurance programs, which are placed with high quality reinsurers.
Despite the company’s history of volatile loss ratios, Energas has demonstrated a track record of strong underwriting performance as demonstrated by a favorable five-year average combined ratio of 53% (2016-2020). Management expenses as a percentage of net premium earned (management expense ratios) have been consistently low at less than 4% over the past five years, while reinsurance commission income has offset the company’s acquisition costs and remained instrumental in generating Energas’ underwriting profits. Investment income arising from bank deposits and debt securities has contributed considerably to overall earnings and helped counterbalance volatility in the company’s technical results. However, Energas may face a prospective decline in reinsurance commission income under a hardening reinsurance market, and a decrease in investment returns given the prolonged low interest rate environment.
As a single-parent captive of
The company’s ERM framework is well-integrated into the group’s risk management function. AM Best considers Energas’ risk management capabilities to be appropriate for the company’s key risk profiles.
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