8 July 2016Bermuda analysis

AM Best affirms the ratings of Nuclear Electric Insurance captive

AM Best has affirmed the financial strength rating of A (Excellent) of captive insurer Nuclear Electric Insurance (NEIL). The outlook for the rating remains stable.

According to the AM Best, the rating reflects NEIL’s strong capital position, conservative operating strategy, strong enterprise risk management culture and its exclusive leadership position in the US nuclear power generating industry. AM Best said that NEIL essentially provides 100 percent of the nuclear utility property insurance coverage in the US.

Partially offsetting these positive rating factors are the company’s primary focus on catastrophic property risks and related business interruption claims, and the financial stress this could cause in the unlikely event of two full-limit losses.

NEIL has also reported volatility in underwriting results in recent years due to claims activity. However, AM Best has said its risk management programme is strong and is designed to manage risks in line with the company’s defined tolerance levels and its comprehensive loss prevention programmes.

The ratings agency recognises NEIL’s history of maintaining sufficient capital to support its ongoing obligations, as well as its financial flexibility to suspend policyholder distributions to facilitate that support. NEIL also has the contractual right to assess a retrospective premium for 10 times each member’s annualised premium, which enhances the company's financial flexibility, although this facility is yet to be used.

“An offsetting rating factor is the company’s reliance on one market and two main product lines, as well as its earnings volatility. However, these factors are reflective of a captive insurer focused on a particular niche market supported by its members,” AM Best said.