AM Best affirms A- rating for National Grid captive

AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” of National Grid Insurance Company (NGICL), a captive insurer of National Grid (NG). The outlook of these ratings is stable.

The ratings reflect NGICL’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.

NGICL’s balance sheet strength is underpinned by its 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 its strategy to maintain sufficient capital buffers to absorb potential volatility stemming from its exposure to low frequency, high severity losses. The assessment also reflects the captive’s conservative investment portfolio, which has been derisked recently. A partially offsetting balance sheet factor is the captive’s reinsurance dependence, driven by the large policy limits needed by NG. Counterparty credit risk is mitigated partially by the strong credit quality of NGICL’s reinsurance panel.

NGICL has a track record of adequate operating performance, generating a five-year (2021-2025) weighted average return on equity of 6.4%. Results over the cycle have been underpinned by prudent underwriting, evidenced by a five-year (2021-2025) weighted average combined ratio of 76.8%, albeit associated with considerable volatility, as demonstrated by large losses reported on its property damage business interruption (PDBI) portfolio in 2021 and 2022. Prospectively, AM Best expects the captive’s underwriting performance to be favourable over the longer term, albeit subject to potential volatility given its high net line sizes relative to its premium base.

NGICL’s business profile assessment reflects its key role in supporting NG’s risk management strategy as its principal captive. The captive is well-integrated into the group’s overall risk management framework, providing a broad range of primarily PDBI, casualty and cyber covers to meet NG’s insurance needs.

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