26 September 2022Reinsurance

AM Best affirms Jupiter ratings

AM Best has affirmed the financial strength rating of A and the long-term issuer credit rating of “a” of Jupiter Insurance, a captive of energy company BP. The outlook of these credit ratings is stable.

The ratings reflect Jupiter’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

Jupiter’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). A partially offsetting rating factor is the captive’s high underwriting limits provided to a number of facilities, which could result in volatility in its solvency position, as well as its concentrated investment portfolio, which principally consists of intra-group term deposits with a bp subsidiary.

AM Best expects Jupiter’s BCAR scores to remain comfortably in excess of the minimum required for the strongest assessment, supported by solid capital buffers, with shareholders’ equity of $6.2 billion at year-end 2021 supporting the captive’s high maximum line size of $1.5 billion. Jupiter does not purchase any outward reinsurance cover, supporting BP’s strategy to retain risks where possible. Investments are highly concentrated, with 99% accounted for by intra-group term deposits with BP International Limited and guaranteed by bp at the end of 2021, with maturities of one month to a year. Consequently, AM Best considers Jupiter’s investments to be linked closely to BP’s credit profile.

The captive has reported strong operating results over the past five years (2017-2021), demonstrated by a weighted average return on equity of 10.1%, mainly driven by strong underwriting profits in the absence of large losses. Prospective operating performance is subject to potential volatility arising from the exposure to high-severity, low-frequency losses in conjunction with the large line sizes offered, relative to the captive’s premium base.

Jupiter’s business profile assessment reflects its key role in bp’s overall risk management framework, as its principal captive. Jupiter’s underwritten risks consist mainly of onshore and offshore property damage and business interruption cover. Reducing insured values due to BP’s divestments, lower oil prices and soft market conditions have put a significant downward pressure on Jupiter’s premium income in recent years.

However, AM Best said that the captive remains a pivotal instrument in BP’s risk management framework, allowing the group to optimise its insurance protection in terms of scope and cost. In addition, Jupiter provides reinsurance to its sister company, Saturn Insurance.