LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of A (Excellent) and the issuer credit rating of “a” of National Grid Insurance Company (Isle of Man) Limited (NGICL), a captive of National Grid plc (NG). The outlook for both ratings remains stable.
The ratings reflect NGICL’s very strong risk-adjusted capitalisation, as well as its importance as a risk management tool within the NG group. A partially offsetting factor is the potential earnings volatility inherent in the captive’s book of business.
NGICL’s risk-adjusted capitalisation is expected to remain very strong, supported by internal capital generation. In addition, there has been a reduction in underwriting risk, following the decision by the NG Group in August 2014 to cease ceding its U.S. business to NGICL and instead cede this business to a separate and newly incorporated U.S. domiciled captive. NGICL retains some exposure to U.S. risks through a layer of stop-loss reinsurance protection provided to the new U.S. captive.
A.M. Best believes that NGICL remains core to NG’s risk management strategy, despite the reduction in U.S. business. NGICL is well integrated into the parent’s overall risk management framework, with its primary objective to mitigate the NG group’s exposure to property damage and business interruption risks.
Prospective underwriting performance is likely to remain volatile, owing to the nature of underwritten risks. The captive is exposed to potentially large losses on its property and business interruption account.
However, technical performance over the long term has been good, demonstrated by a five-year average combined ratio of 65%. The impact of large losses on the captive’s balance sheet is partly mitigated by extensive reinsurance in place with a panel of financially strong counterparties.
Positive rating actions are considered unlikely in the short to medium term. Negative rating actions may occur if there were material deterioration in NGICL’s risk-adjusted capitalisation or a prolonged period of poor operating results. In addition, if the captive’s importance as a risk management tool within the NG group were to diminish, there may be negative rating pressure.
A.M. Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Alternative Risk Transfer
- Catastrophe Analysis in A.M. Best Ratings
- Evaluating Non-Insurance Ultimate Parents
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
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