LONDON–(WORK TEL)–AM Best Reaffirmed Saturn Insurance Inc.’s (Saturn) (Burlington, VT) Financial Strength Rating of A- (Excellent) and Long-Term Issuer Credit Rating of “a-” (Excellent). Saturn is a prisoner of BP plc (bp), an integrated global energy company. The outlook for these Credit Ratings (ratings) is stable.
The ratings reflect Saturn’s balance sheet strength, which AM Best considers strong, as well as adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also take into account rating development by Saturn’s subsidiary Jupiter Insurance Limited, which is the bp group’s main captive and provides significant reinsurance support to Saturn.
Saturn’s balance sheet strength is supported by its strongest risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Partially stabilizing rating factors include the captive’s heavy investment portfolio and its high reliance on reinsurance to protect its balance sheet against high-severity, low-frequency losses. The ratings also take into account the company’s relatively small capital base, which exposes its risk-adjusted capitalization to potential volatility given the large limits offered. Investments are highly concentrated, with three intragroup time deposits of over 99% at the end of 2021 with maturities of one month to one year with two bp subsidiaries, North America Funding Company and BP International Limited. As a result, AM Best thinks Saturn’s investments are closely linked to bp’s credit profile.
Saturn has a solid history of insurance profitability, as evidenced by the five-year (2017-2021) weighted average combined rate achieved despite a large workers’ compensation (WC) claim that negatively impacted performance in 2017. This claim led to a combined rate of 129% as calculated by AM Best in 2017, highlighting that the prisoner’s performance is subject to potential volatility, a factor balancing the assessment. Adequate operating performance and full retention of earnings have supported growth in capital and surplus of 72% since the company was founded in 2011.
AM Best considers Saturn’s business profile to be limited, reflecting the small and concentrated portfolio of high-risk businesses originating from the bp group in the US. Saturn’s portfolio primarily consists of property damage and business interruption, terrorism coverage, WC insurance, environmental protection and financial liability certificate coverage. The decline in insured values due to the divestment of BP, lower oil prices and soft market conditions has resulted in a decrease in the prisoner’s gross written premium of approximately 81% since 2014.
AM Best remains the leading rating agency for alternative risk transfer agencies, rating more than 200 vehicles of this type around the world. For current Best’s Credit Ratings and independent data on the fixed and alternative risk transfer insurance market, please visit www.ambest.com/captive.
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