LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Saturn Insurance Inc. (Saturn) (Burlington, VT). Saturn is a captive of BP p.l.c. (BP), an integrated global oil and gas company. The outlook of the Credit Ratings (ratings) remains stable.
The ratings reflect Saturn’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also consider rating lift from Saturn’s reinsurer, Jupiter Insurance Limited (Jupiter), which is the principal captive of the BP group and provides substantial reinsurance support to Saturn.
Saturn’s balance sheet strength is supported by its risk-adjusted capitalisation categorised as strongest, as measured by Best’s Capital Adequacy Ratio (BCAR). Saturn writes large gross lines relative to the size of its capital base. However, reinsurance protects its balance sheet against high severity, low frequency losses. Offsetting rating factors continue to be the captive’s high reinsurance dependence and relatively small capital base, which exposes the risk-adjusted capitalisation to potential volatility following large losses.
Saturn benefits from low investment risk, with approximately half of its assets invested in cash and cash equivalents. The remainder of the portfolio is composed of callable short-term loans to a BP affiliate, with excellent liquidity terms.
Saturn recorded solid operating results in the 2014–2018 period, as demonstrated by a five-year weighted average return on equity of 7.1%, which was achieved despite a large workers’ compensation claim that negatively impacted its performance in 2017. The claim also demonstrates the exposure of the captive’s performance to volatility, which is an offsetting rating factor. Saturn’s track record of strong performance and full retention of earnings have supported growth in capital and surplus of 51% since the company’s incorporation in 2011.
Saturn’s business profile is assessed as limited, reflecting its small and concentrated portfolio of high-risk business emanating from the BP group in the United States. Saturn’s portfolio consists primarily of terrorism cover, certificate of financial responsibility, workers’ compensation insurance and environmental protection agency cover. The soft rate environment over the past four years has led to a decline in the captive’s gross written premiums, by approximately 60% since 2014.
AM 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.
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