Standard & Poor’s has reaffirmed its ‘A’ rating on Assuranceforeningen Skuld (Gjensidig), with a stable outlook.
S&P said that it believed the club would maintain a significant capital buffer above S&P’s ‘AA’ benchmark over the next two years.
“We expect the club will also continue to maintain its position as one of the leading insurers in the P&I market”, S&P said.
Skuld recorded its first underwriting loss in 16 years in FY2020 with a combined ratio of 109%. S&P believed that the club was likely to suffer further losses (both underwriting and mark-to-market investment losses) in FY2021. However, S&P did not believe these losses to be part of a trend. It felt that Skuld’s underwriting performance would return to breakeven in FY2022.
Skuld had sufficient excess of capital above S&P’s ‘AA’ benchmark to absorb these likely losses in FY2021 and still maintain the ‘A’ rating. The base-case S&P scenario was that Skuld would record a combined ratio close to 105% in FY2021 and about 100% in FY2022, largely due to claims and potentially premium returns arising from the secondary effects of the Covid-19 pandemic.
S&P also expected the club would suffer mark-to-market losses on its investment portfolio if the markets remained depressed over the course of FY2021. It therefore forecast a net loss after tax in FY2021 of about $30m, swinging to a $15m net profit in FY2022.
The agency expected a breakeven result for underwriting in FY2022 and a small investment gain. Skuld was expected to maintain capital above its ‘AA’ benchmark throughout this period, measured by S&P’s risk-based capital model.
Skuld’s result in FY2020 showed the club was exposed to volatility – both from its own book of business and from pool claims from other International Group clubs –. Gard is the only other protection and indemnity (P&I) club that S&P views at this level; S&P considers all other clubs to be more volatile.
“We believe that Skuld’s long history of robust and steady operating performance support this. We expect that the club, on an underlying basis, will improve its performance in FY2022 with a combined ratio of 100% or below. However, if it continued to record adverse volatility in underwriting or operating performance, we would revise our assessment of the club’s exposure to volatility.”
The stable outlook reflected S&P’s expectation that Skuld’s capital adequacy would remain well above our ‘AA’ benchmark over the next two years. “We also anticipate the club will improve its operating performance on an underlying basis in FY2021 and return to underwriting profitability in FY2022. We expect the club will also continue to maintain its position as one of the leading insurers in the P&I market.”