AMSTERDAM--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Sveriges Ångfartygs Assurans Förening (The Swedish Club) (TSC or the Club) (Sweden).
The Credit Ratings (ratings) reflect TSC’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The revision of the outlooks to negative reflects ongoing pressure on operating performance, as challenging market conditions continue to impact the Club’s underwriting results. The Club has taken measures to address this underperformance, notably announcing a general increase of 12.5% on protection and indemnity (P&I) rates for the 2022/23 policy year. However, a negative rating action could occur should these measures prove insufficient to restore underwriting performance in the short-to-medium term.
TSC’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Free reserves remained stable during 2020 but are expected to have decreased for 2021 (year-end 2021 official figures not yet available). As a result, AM Best expects TSC’s BCAR for 2021 to diminish, yet remain supportive of the strongest level assessment. TSC maintains a good liquidity profile, with liquid assets representing 167% of net technical provisions at year-end 2020.
Historical performance has been moderately volatile, with earnings varying from a profit of USD 18.5 million (2019) to a loss of USD 8.3 million (2018) over the 2016-2020 period. In 2020, the Club reported a technical loss of USD 31 million translating into a combined ratio of 123% (2019: 106%). The deterioration was driven by losses reported on the P&I line of business, while its performance of the marine line of business remained in line with that of the previous year. AM Best expects TSC to report another large technical loss for 2021, with a material impact from P&I pool claims. In addition, performance in the marine line of business is not expected to improve due to the impact of large claims, such as X-Press Pearl, for which the Club was the lead hull underwriter. Technical losses are expected to be offset partly by positive investment earnings.
TSC maintains a well-diversified portfolio within the marine insurance market, offering hull and machinery, and P&I types of cover, and benefits from membership in the International Group of P&I Clubs. Gross written premium increased by 8% in 2020 and AM Best expects further premium growth to be reported for 2021 and in 2022, as a result of the club’s general increases for the P&I segment.
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