Best’s News & Research Service - August 27, 2021 01:31 PM (EDT)
AM Best Affirms Credit Ratings of Saturn Insurance Inc.
- August 27, 2021 01:31 PM (EDT)
London //BestWire// - AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Saturn Insurance Inc. (Saturn) (Burlington, VT). Saturn is a captive of BP p.l.c. (BP), an integrated energy company. The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Saturn’s balance sheet strength, which AM Best assesses 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, which is the principal captive of the BP group and provides substantial reinsurance support to Saturn.
Saturn’s balance sheet strength is underpinned by its strongest risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). The captive has a highly liquid investment portfolio, with approximately half of its assets invested in cash and cash equivalents at year-end 2020. Allocation of investments to deposits with a BP affiliate, BP International Limited, is expected to increase in 2021. This will link Saturn’s investments closely to BP’s credit profile. Partially offsetting rating factors include the captive’s high dependence on reinsurance to protect its balance sheet against high severity, low frequency losses, and relatively small capital base, which, considering the large limits offered, exposes its risk-adjusted capitalisation to potential volatility.
Saturn has a track record of solid underwriting profitability, as demonstrated by a five-year (2016-2020) weighted average combined ratio of 53.5%, which was achieved despite a large workers’ compensation (WC) claim that negatively impacted performance in 2017. This claim led to a combined ratio of 129.1% in 2017, highlighting the exposure of the captive’s performance to volatility, which is an offsetting factor to the assessment. Adequate operating performance and full retention of earnings have supported growth in capital and surplus of 68% since the company’s incorporation in 2011.
AM Best assesses Saturn’s business profile 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, WC insurance, certificate of financial responsibility and environmental protection agency cover. The lower insured values due to BP’s divestments, lower oil prices and soft market conditions over the past years have led to a decline in the captive’s gross written premium by approximately 72% 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.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.