AM Best affirms BP captive ratings

AM Best has affirmed the financial strength rating of A- and the long-term issuer credit rating of “a-” of Vermont-based Saturn Insurance. Saturn is a captive insurer of BP, an integrated global energy company. The outlook of these ratings is stable.

The ratings reflect Saturn’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also consider rating enhancement from Saturn’s affiliate, Jupiter Insurance Limited, which is the largest captive of the BP group and provides substantial reinsurance support to Saturn.

Saturn’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio, at the strongest level, the rating agency said. Partially offsetting these positive rating factors are the captive’s concentrated investment portfolio and high dependence on reinsurance to protect its balance sheet strength against high-severity, low-frequency losses. The ratings also factor in Saturn’s relatively small capital base, which considering its large limits offered, exposes the company’s risk-adjusted capitalisation to potential volatility. Investments are highly concentrated, with over 99% accounted for by short-term intragroup deposits placed with two BP subsidiaries at year-end 2023.

AM Best views Saturn’s operating performance as adequate, considering its five-year weighted average return-on-equity ratio of 4.4%. The captive’s earnings are supported by solid underwriting profitability, as demonstrated by a five-year (2019-2023) weighted average combined ratio of 38.6%, as calculated by AM Best.

AM Best said it expects Saturn’s earnings to remain relatively modest and subject to potential volatility given the large net policy limits it offers compared with its premium base.

AM Best assesses Saturn’s business profile as limited, reflecting its small and concentrated portfolio of high-risk business emanating from the BP group in the United States. Saturn’s portfolio consists primarily of terrorism cover for Terrorism Risk Insurance Act certified property damage and business interruption, workers’ compensation insurance, environmental protection and certificate of financial responsibility cover. Declining insured values due to BP’s divestments, lower oil prices and soft market conditions led to a drop in the captive’s gross written premium by approximately 80% over the last decade. However, some of these trends reversed in recent years, with Saturn reporting premium growth in 2022 and 2023.

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