LONDON-(BUSINESS WIRE)–AM Best confirmed the financial stability rating of A- (excellent) and the long-term credit rating of the issuer “a-” (excellent) of Saturn Insurance Inc. Saturn is a captive of BP plc (bp), an integrated global energy company. The forecast for these credit ratings (ratings) is stable.
The ratings reflect the strength of Saturn’s balance sheet, which AM Best rates as strong, as well as its adequate operating performance, limited business profile and sound enterprise risk management. The ratings also take into account the upgrade by Saturn’s subsidiary, Jupiter Insurance Limited, which is the majority owner of the bp group and provides Saturn with significant reinsurance support.
Saturn’s balance sheet strength is backed by Best’s strongest risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR). Partially offsetting rating factors include the captive company’s concentrated investment portfolio and high reliance on reinsurance to protect its balance sheet against severe, low-frequency losses. The ratings also take into account the company’s relatively small capital base, which, given the large limits offered, exposes its risk-adjusted capitalization to potential volatility. Investments are highly concentrated, with more than 99% at the end of 2021 in three intragroup time deposits with two of bp’s subsidiaries, North America Funding Company and BP International Limited, with maturities between one month and one year. Therefore, AM Best believes that Saturn’s investment is closely related to bp’s credit profile.
Saturn has a track record of strong underwriting profitability, as evidenced by a five-year (2017-2021) weighted average combined ratio of 56%, which was achieved despite a large workers’ compensation (WC) claim that negatively impacted performance in in 2017. This statement resulted in a cumulative ratio estimated by AM Best to be 129% in 2017, highlighting the impact of potential volatility on captive performance as an offsetting factor for valuation. Adequate operating performance and full earnings retention have supported capital growth and surplus of 72% since the company’s incorporation in 2011.
AM Best rates Saturn’s business profile as limited, reflecting its small and concentrated portfolio of high-risk businesses originating from the bp group in the United States. Saturn’s portfolio consists primarily of property damage and terrorism coverage, toilet insurance, environmental protection and a certificate of financial responsibility. Lower insurance costs due to the bp spin-off, lower oil prices and soft market conditions have resulted in a roughly 81% decline in captive gross premiums since 2014.
AM Best remains the leading rating agency for alternative risk transfer organizations, rating more than 200 such vehicles worldwide. For Best’s current credit ratings and independent data on the captive and alternative risk insurance market, visit www.ambest.com/captive.
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