22 June 2018Analysis

Shell's captives get 'Excellent' ratings

Ratings agency AM Best has affirmed the financial strength rating of A (Excellent) of Switzerland-based captive Solen Versicherungen AG (SVAG) and Texas-based captive Noble Assurance Company (Noble).

Noble writes the US business of oil company Royal Dutch Shell (Shell) and cedes 100 percent of its risks to Shell's principal captive SVAG through a quota share reinsurance agreement.

The ratings reflect SVAG's balance sheet strength, which AM Best categorises as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

SVAG's balance sheet strength is supported by its risk-adjusted capitalisation being at the very strong level, as measured by Best’s Capital Adequacy Ratio (BCAR).

AM Best added that the balance sheet strength assessment benefits from a positive holding company impact, which reflects SVAG’s affiliation with its ultimate parent, Shell, to which it acts as an important risk management tool.

Shell provides explicit support to SVAG in the form of a contingent capital facility that will allow SVAG to replenish its capital quickly following a sequence of very large losses.

The ratings agency expects the risk-adjusted capitalisation to remain very strong, supported by internal capital generation.

"The captive has a strong operating performance track record, largely driven by robust underwriting results, as demonstrated by a five-year average combined ratio of 35.6 percent," said AM Best. "Prospective performance is subject to volatility from exposure to high severity, low frequency losses, reflecting the type of business underwritten and the captive’s large gross and net maximum line size. The captive does not purchase outward reinsurance cover for the majority of its risks."

SVAG plays a key role in Shell's overall risk management framework, as its principal captive. Non-life risks largely consist of offshore and onshore property and liability business, as well as the associated business interruption cover. SVAG also reinsures life business emanating from the group’s pension liabilities.