A.M. Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” of Saturn Insurance Inc. (Saturn), based in Burlington, Vermont. Additionally, it has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” of Jupiter Insurance Limited (Jupiter), based in Guernsey.
Both Saturn and Jupiter are captives of BP, an integrated global oil and gas company. The outlook of the credit ratings (ratings) is stable for both.
A.M. Best stated that these ratings reflect Saturn’s balance sheet strength, which was categorised 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, which is the principal captive of the BP group and provides substantial reinsurance support to Saturn.
A.M. Best stated that these ratings reflect Jupiter’s balance sheet strength, which was categorised as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
Saturn and Jupiter’s balance sheet strength are supported by their risk-adjusted capitalisation categorised as strongest, as measured by Best’s Capital Adequacy Ratio (BCAR).
Saturn has a highly liquid investment portfolio, with approximately half of its assets invested in cash and cash equivalents at year-end 2019. The remainder of the portfolio is composed of callable short-term loans to a BP affiliate, with excellent liquidity terms.
A.M. Best noted that offsetting rating factors include Saturn'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 risk-adjusted capitalisation to potential volatility.
Saturn recorded solid underwriting profitability in the 2015–2019 period, as demonstrated by a five-year weighted combined ratio of 47.7 percent, which was achieved despite a large workers’ compensation claim that negatively impacted performance in 2017.
A.M. Best said it expects Jupiter’s risk-adjusted capitalisation to remain at the strongest level, supported by strong internal capital generation. A capital base of approximately $6.5 billion at year-end 2019 supports the captive’s high maximum line size of $1.5 billion. The captive does not purchase any outward reinsurance cover. Jupiter’s investments are highly concentrated, with 99 percent accounted for by discount notes issued by BP International Limited, with durations of one month to a year.
Additionally, A.M. Best considered Jupiter’s financial strength to be linked closely to that of BP. The captive has reported strong operating results over the past five years, mainly driven by strong underwriting profits in the absence of large losses. However, soft market conditions, lower insured values due to BP’s divestments and lower oil prices have put significant downward pressure on Jupiter’s premium income.
Elsewhere, the rating firm noted that Saturn’s claim also demonstrates the exposure of the captive’s performance to volatility, which is an offsetting rating factor. Saturn’s track record of adequate operating performance and full retention of earnings have supported growth in capital and surplus of 60 percent since the company’s incorporation in 2011.
It assessed: “Saturn’s business profile as limited, reflecting its small and concentrated portfolio of high-risk business emanating from the BP group in the US.”
A.M. Best also noted that Jupiter’s business profile assessment reflects its key role in BP’s overall risk management framework, as its principal captive. Jupiter’s underwritten risks consist largely of offshore and onshore property and business interruption cover.
“The captive allows BP to optimise its insurance protection in terms of scope and cost. In addition, Jupiter provides reinsurance to its sister captive, Saturn,” the rating firm added.