AM Best has upgraded the Financial Strength Rating to B++ (Good) from B+ (Good) and the Long-Term Issuer Credit Rating to “bbb” (Good) from “bbb-” (Good) of S2C S.p.A. Compagnia di Assicurazioni di Crediti e Cauzioni (S2C) (Italy). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect S2C’s balance sheet strength, which AM Best assesses as adequate, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
The rating upgrades reflect the revision of S2C’s operating performance assessment to strong from adequate, driven by consistent positive underwriting results since the company’s inception. S2C’s strong track record of underwriting performance is demonstrated by a five-year weighted average combined ratio of 65% (2017-2021) and a 10-year weighted average combined ratio of 69% (2012-2021). In 2021, the combined ratio remained good at 56% (2020: 58%), underpinned a low loss ratio of 9%. AM Best notes that prospective performance may be volatile due to movements in the supplementary unearned premium reserve (required by local regulation) and the potential for fluctuations in loss experience from the company’s surety business.
S2C’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), remained at the strongest level at year-end 2021. AM Best expects the company’s risk-adjusted capitalisation to remain at least at the very strong level prospectively. Offsetting factors in the balance sheet strength assessment include the company’s limited financial flexibility, its material exposure to Italian government bonds and real estate investments and its small capital base, which increases the potential for volatility in risk-adjusted capitalisation. Dependence on reinsurance is high, although the risks associated with the dependence are mitigated somewhat by the company’s long-standing relationships with reinsurers of excellent credit quality.
S2C is a niche mono-line insurer that focuses on the highly competitive surety market in Italy. The company leverages its specialist expertise to compete against larger players and maintains sustainable premium rates. S2C has a developed ERM framework, with clear risk appetite and tolerance levels in place.
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Jose Berenguer, CFA
Senior Financial Analyst
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