AM Best affirms the financial strength rating of ‘A-’ (Excellent) and the long-term issuer credit rating of ‘a-’ (Excellent) of National Grid Insurance Company (Isle of Man) Limited, a captive insurer of National Grid. The outlook of the ratings is ‘stable’. The ratings reflect the captive’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. Balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects the captive’s BCAR scores to remain comfortably above the minimum required for the strongest assessment, reflecting a strategy of maintaining sufficient capital buffers to absorb potential volatility from its exposure to low frequency, high severity losses. The assessment also reflects a conservative investment portfolio allocated primarily to money market funds with solid liquidity and credit quality. AM Best considers the captive’s reinsurance dependence to be high, driven by the large policy limits National Grid requires, with counterparty credit risk partially mitigated by the strong credit quality of its reinsurance panel. The captive generated a five-year weighted average return on equity of 9.4 per cent across 2022 to 2026. Earnings over the cycle have improved, underpinned by prudent underwriting, with a five-year weighted average combined ratio of 53.7 per cent against a ten-year weighted average of 69.2 per cent. AM Best expects underwriting performance to be favourable over the longer term, though subject to potential volatility given the captive’s high net line sizes relative to its premium base. The business profile assessment reflects the captive’s role as National Grid’s principal captive and its integration into the group’s risk management framework. It provides a broad range of cover, primarily property damage, business interruption, casualty and cyber.
