S&P affirms Skuld’s “A” rating

Rating agency Standard & Poor’s has affirmed the ‘A’ rating of Norway-based marine insurer and mutual Skuld.

S&P said that Skuld had a strong reputation and a market position in the marine and P&I insurance (P&I) market, although, as was the case with its peers, it was relatively undiversified outside of its marine specialism. The club was said to be well-capitalized and likely to remain so across the next two years, although the P&I market was expected by S&P to remain challenging over the same period. “The club is likely to continue to report positive bottom-line results over the next two years. For the financial year  2021-2022, we expect the club will report an underwriting result close to breakeven, with an expectation that pool claims will remain at a heightened level. In FY2022-FY2023, the club is likely to return to underwriting profitability”.

S&P said that Skuld historically had recorded less volatility in results than its P&I club peers, but the club remained exposed to the volatility of other International Group (IG) clubs’ claims through the IG’s pooling system.

S&P’s assumptions included that the global economy would recover from the Covid-19 pandemic in 2021 as vaccination roll-out progressed across the globe. It expected G20 economies to bounce back with a growth rate of 6.4%. Investment returns were expected to remain muted due to continued low interest rates. S&P expects 10-year US government bond yields to improve to 1.7% this year. Claims from the IG reinsurance pooling system were expected to remain at the heightened level seen in the past three years.

Assuranceforeningen Skuld (Gjensidig)–Key Metrics

2023f 2022f 2021 2020 2019 2018  
S&P Global Ratings capital adequacy Very strong Very strong Excellent Excellent Excellent Very strong
GWP $m ~415 ~405 390.8 390.8 401.6 412.7
Net income $m ~15 ~10 24.6 25.5 10.7 57.5
Return on shareholders’ equity (%) ~3 ~2 5.3 5.6 2.4 13.9
P/C: net combined ratio (%) 99.0 101.0 108.7 110.3 97.7 98.4

S&P observed that Skuld’s regulatory capital position was a healthy 184% for the overall group at year-end 2021, based on the standard formula. The club benefited from about $130m of ancillary own funds,” reflecting its ability to make unbudgeted calls on its mutual members. S&P does not give credit for this in its capital model, but it does influence its choice of the higher ‘a’ anchor.