5 November 2018Analysis

AM Best gives Excellent ratings to Phillips 66 captives

Ratings agency AM Best has affirmed the financial strength rating of A (Excellent) of Vermont-based Spirit Insurance Company and Cayman-based Radius Insurance Company, the captive insurers of energy company Phillips 66.

The ratings reflect the two captives’ balance sheet strength, which is categorised as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

Spirit and Radius’ risk-adjusted capitalisation is at the strongest level as measured by Best’s Capital Adequacy Ratio (BCAR), with consistently favorable loss development and high liquidity.

Business is written separately by Spirit and Radius, and each company has a history of strong underwriting results and operating returns, with most return metrics outpacing the composite.

Phillips 66 incorporates Spirit and Radius as core elements in its overall risk management programme. The captives’ loss experience has remained favorable due in part to a lack of material catastrophic events and the parent’s strong loss control program. Phillips 66 conducts periodic reviews of Spirit and Radius’ potential loss exposures through an industrial risks specialist.

Spirit and Radius underwrite risks largely consisting of onshore and offshore property and liability business. Spirit provides property damage, business interruption and excess liability insurance to Phillips 66, and its affiliates and subsidiaries related to domestic US operations only; however, Spirit does not provide coverage for Texas-based risks.

Radius provides similar coverage (property damage, business interruption, excess liability), as well as cargo insurance to Phillips 66 and affiliates, and subsidiaries related to non-US risks in which Phillips 66 has ownership interests.

AM Best said that the ratings are partially offset by Spirit and Radius’ exposure to large losses due to the limits offered on their respective policies and their significant dependence on reinsurance protection. In addition, Spirit’s terrorism risk exposure remains relatively high on a gross basis.