AM Best has affirmed the financial strength rating of A (excellent) and issuer credit rating of “a” of Palms Insurance Company. The outlook for both ratings remains stable.
These ratings reflect Palms' excellent risk-adjusted capitalisation and history of consistently strong operating performance, as well as the captive's strong integration within the risk management structure of its parent, NextEra Energy Capital Holdings (NEECH).
The ratings also recognise Palms' history of maintaining sufficient capital and financial resources to support its ongoing obligations.
Partially offsetting these positive rating factors are Palms' limited market scope and high net loss potential stemming from a single, severe occurrence relative to surplus. Nevertheless, this is somewhat mitigated by the company's loss history, favourable geographic spread of risk and the history of support of Palms' surplus position by its parent.
Palms is a single parent or pure captive insurer owned by NEECH, which in turn is owned by NextEra Energy (NEE)—hence, Palms insures select risks for NEE. Although Palms participates in a range of coverages for very large risks, these risks are underwritten with tight guidelines and significant loss control measures by the insured affiliates.
Positive rating actions on Palms appear unlikely at this time and this potential for future volatility is reflected in the current rating level. Nonetheless, downward rating pressure could result from weakened free cash flow, a decline in the company's liquidity levels, an increase in underwriting leverage and/or outsized catastrophe or investment losses in conjunction with a significant prolonged decline in risk-adjusted capitalisation.
In addition, financial issues resulting in rating pressure on NEECH and/or NEE could impact Palms' ratings.
