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 global 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 enhancement from Saturn's affiliate, 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). Partially offsetting rating factors include the captive's concentrated investment portfolio and high dependence on reinsurance to protect its balance sheet against high-severity, low-frequency losses. The ratings also factor in the company's relatively small capital base, which, considering the large limits offered, exposes its risk-adjusted capitalisation to potential volatility. Investments are highly concentrated, with over 99% at year-end 2021 accounted for by three intra-group term deposits with two bp subsidiaries, North America Funding Company and BP International Limited, with maturities of one month to a year. Consequently, AM Best considers Saturn's investments to be linked closely to bp's credit profile.
Saturn has a track record of solid underwriting profitability, as demonstrated 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 2017. This claim led to a combined ratio, as calculated by AM Best, of 129% in 2017, highlighting the exposure of the captive's performance to potential 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 72% 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 property damage and business interruption terrorism cover, WC insurance, environmental protection and certificate of financial responsibility cover. Reducing insured values due to bp's divestments, lower oil prices and soft market conditions have led to a decline in the captive's gross written premium by approximately 81% 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 Performance Assessments, Best's Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best's Ratings Assessments.
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