13 May 2022Reinsurance

AM Best affirms Palms ratings

AM Best has affirmed the financial strength rating of A and the long-term issuer credit rating of “a” of Palms Insurance Company. The outlook of these credit ratings is stable.

The ratings reflect Palms’ balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

Palms is a single-parent insurer wholly owned by NextEra Energy Capital Holdings (NEECH), which in turn is wholly owned by NextEra Energy. Palms underwrites insurance risks primarily from NextEra and its affiliates, providing specialised direct and assumed property, casualty, workers’ compensation, automobile liability and employers’ liability coverages. Palms also provides property and casualty insurance to select non-affiliated entities.

According to AM Best the ratings reflect Palms’ solid risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio, consistent positive operating performance and conservative balance sheet strategies, as well as its strong management and significant role within the risk management structure of its parent, NEECH. The ratings also recognise Palms’ history of maintaining sufficient capital and financial resources to support its ongoing obligations.

Palms provides coverage primarily for the energy and utility industry and has high net loss potential stemming from a single, severe occurrence relative to its surplus. This is mitigated somewhat by Palms’ excellent loss history, its favourable geographic spread of risk and historically strong surplus position. Additionally, while Palms partially relies on third parties for processing, servicing and administration, Palms’ management is involved closely in these operations.

The rating agency added that Palms has expanded and enhanced its underwriting structure with necessary talent and expertise to support the expansion into non-affiliate business. Although Palms participates in a range of coverages of its parent company for very large risks, these risks are underwritten with tight guidelines and significant loss control measures by the insured affiliates, as evidenced by favourable loss ratios over the past five years. Prospective underwriting performance still remains subject to volatility, due to Palms’ exposure to low frequency, high severity claims in its property program, which includes coverage for NextEra’s renewable energy interests and other non-affiliate coverage.