12 November 2018Analysis

JPMorgan captive gets ‘Excellent’ rating

Ratings agency AM Best has affirmed the financial strength rating of A (Excellent) of JPMorgan Chase’s single-parent captive, Park Assurance Company.

The outlook is stable, and the ratings reflect Park’s balance sheet strength, which AM Best categorises as strongest, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.

AM Best acknowledges Park’s sophisticated risk management strategy, conservative investment portfolio, experienced management team, and integral role as a single-parent captive of JPMorgan Chase Holdings.

Park provides coverages relating to JPMorgan Chase’s global property programme, including terrorism exposure, and, prior to 2017, its general liability risks that remain a key component of the bank’s overall risk management strategy. The captive in turn benefits from the explicit support of JPMorgan Chase’s significant financial and extensive professional resources.

The ratings agency noted that Park is well-capitalised through retained earnings and maintains a comprehensive reinsurance program with highly rated reinsures to mitigate its exposure to oversized losses on substantially valued insured locations.

Park has reported consistently favourable pure loss ratios in combination with its low-cost expense structure to produce favorable operating earnings year-over-year.

Despite its level of capitalisation, Park is reliant on the protection afforded by the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA), and while the TRIPRA programme offers significant protection from terrorism losses, the net impact on Park could still be burdensome. AM Best recognises the low probability of such extreme events, however.

AM Best suggested negative rating action could occur in the event of the non-renewal of TRIPRA, although it is mitigated as Park has the ability to terminate all terrorism-related contracts if the Act is not renewed.

Furthermore, negative action could occur due to a significant decline in risk-adjusted capitalisation from a sustained deterioration in earnings. It could also occur due to financial issues causing downward pressure on the parent company’s credit profile.