A.M. Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” of Cayman Islands-based captive Palms Insurance.
The outlook of these ratings remains stable.
Palms is the single parent captive of NextEra Energy Capital Holdings (NEECH), which is wholly-owned by NextEra Energy (NEE), a renewable energy company that is the world’s largest producer of solar and wind energy.
The captive only accepts insurance risks from NEE and its affiliates, providing specialised direct and assumed property and casualty coverages, workers’ compensation, automobile liability, employers’ liability, and property risk.
Palms’ ratings are reflective of its “strongest” balance sheet, adequate operating performance, neutral business profile, and appropriate enterprise risk management.
Additionally, they reflect the captive’s solid risk-adjusted capitalisation, history of consistently positive operating performance and conservative balance sheet strategies.
A.M. Best also takes into consideration Palms’ “significant role” within the risk management structure of NEECH and its history of maintaining sufficient capital and financial resources to support its ongoing obligations.
The captive participates in a range of coverages for very large risks, however, these are underwritten with tight guidelines and significant loss control measures by the insurance affiliates as evidenced by favourable loss ratios over the past five years.
The ratings agency noted: “Nonetheless, prospective underwriting performance remains subject to volatility, due to exposure to low frequency, high severity claims in its property programme, as the renewable energy industry that it operates within is fundamentally volatile.”
The positive rating factors are offset partially by Palms’ limited market scope and high net loss potential stemming from a single, severe occurrence relative to surplus.
This is somewhat mitigated by the company’s excellent loss history, favourable geographic spread of risk and the captive’s history of strong surplus position.
While Palms depends on third parties for processing, servicing and administration, the senior management of its ultimate parent, NEE, is closely involved in these operations.