BMI captive gets outlook thumbs up from AM Best
AM Best has revised the outlooks to positive from stable and affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of "a-" (Excellent) of Bermuda-based Research Insurance Company (RICL).
RICL is a captive insurance company wholly owned by Battelle Memorial Institute (BMI), an Ohio-based nonprofit corporation and provider of technology-based research, management, commercialisation and educational services to government and industry.
AM Best said that the ratings reflect RICL's balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile, appropriate enterprise risk management (ERM) and one notch of rating enhancement that is received from its ultimate parent, BMI.
The positive outlooks are driven by RICL's favourable results, with five-year average combined and operating ratios and net return on revenue metrics that outperform those of AM Best's commercial casualty composite. Consistent operating profits have been attributable to favourable underwriting results, and to a greater extent, solid investment income in each of the past five years. RICL's low loss experience is driven by conservative operations, including management's disciplined underwriting philosophy and robust claims and risk management practices. Furthermore, RICL's underwriting performance reflects the inherent benefits of being a captive insurer as it has minimal acquisition costs and administrative expenses, driving its lower-than-average expense ratio.
RICL's balance sheet strength assessment is underpinned by the strongest level of risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), as well as its conservative investment risk profile and organic surplus growth achieved over the last five years. These factors are offset by the captive's fluctuating retention relative to its surplus.
AM Best assesses RICL's business profile as limited, as it writes, mainly on a claims-made basis, products and errors and omissions, umbrella policies for general and employers' liability, professional liability, including environmental impairment, and property flood deductible buy-down coverage for its parent and affiliated organisations. RICL is an integral component of BMI's ERM program as it provides specific insurance coverages to BMI, its subsidiaries and affiliates more efficiently than the traditional market. This strategic role, along with RICL's history in the BMI enterprise, justifies lift from the parent in the ratings as it indicates a committed level of implicit and explicit support, as well as other inherent benefits the captive receives from BMI.
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