AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of National Grid Insurance Company (NGICL) (Isle of Man). The company is a captive insurer of National Grid (NG). NGICL’s business profile assessment reflects its role in NG’s risk management strategy as its principal captive. The company is “well-integrated” into the group’s overall risk management framework, according to AM Best. The captive provides a broad range of primarily property damage business interruption (PDBI), casualty and cyber cover to meet NG’s insurance needs. The outlook of these ratings is stable. AM Best says the ratings reflect NGICL’s balance sheet strength, which it assesses as “very strong”, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. NGICL’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by AM Best’s Capital Adequacy Ratio. AM Best expects the captive’s BCAR scores to remain comfortably above the minimum required for the strongest assessment, reflecting its strategy to maintain sufficient capital buffers to absorb potential volatility stemming from its exposure to low frequency, high severity losses. AM Best identifies a partially offsetting balance sheet strength factor: the captive’s reinsurance dependence, driven by the large policy limits needed by NG. Counterparty credit risk is mitigated partly by the good credit quality of NGICL’s reinsurance panel. NGICL has a track record of adequate operating performance, generating positive net results in seven of the past 10 years, underpinned by “good underwriting performance” over the cycle. However, the captive reported significant losses on its PDBI book in financial years 2021 and 2022, which is reflected by the deteriorated five-year from 2019 to 2023 weighted average combined ratio of 106 per cent. AM Best expects the captive’s underwriting performance to be robust over the longer-term, subject to potential volatility given its high net line sizes relative to its premium base, supported by corrective actions taken by management following recent losses.
