21 December 2015Actuarial & underwriting

AM Best affirms ratings of Schlumberger captives

AM Best has affirmed the financial strength rating of A (Excellent) of Castle Harbour Insurance, Harrington Sound Insurance and Colliers Bay Insurance (Cayman Islands), which are all owned by information solutions firm Schlumberger.

The outlook for all ratings is stable.

AM Best said the ratings and outlook reflect the captives’ excellent capitalisation and conservative operating strategy. The ratings also consider the captives’ critical role and favourable profile as part of Schlumberger, as well as their excellent operating performance during the past five years, providing tailored insurance coverage to subsidiaries of the parent for certain property/casualty risks.

Partially offsetting these positive rating factors, according to the rating firm, are the captives’ relatively large limits in its general liability and property lines of business. Nevertheless, AM Best said that it recognises the substantial financial resources of the captives and its parent.

AM Best views the captives’ management and corporate strategy as a strengthening factor in its ratings, given the group’s conservative underwriting, operational goals and transparency. It also said the captives’ enterprise risk management practices as strong given the impact on its conservative risk culture, defined risk controls and the optimisation of its capital and surplus.

Other factors considered in AM Best’s ratings process include, but are not limited to, the diversification in line of business and geography, as well as the support and commitment of the parent and the group’s mission.

AM Best said it expects the captives’ future operating performance to be stable but strong, and the stable earnings profile should further support the companies to control growth and business writings, which are consistent with the captives’ capital and surplus position.

The outlook of the captives could be raised if operating performance improves and risk-adjusted capital remains supportive of the ratings. Negative rating pressure could occur if underwriting performance shows decline and demonstrates volatility that impacts negatively on earnings and capitalisation over time, according to the firm.

AM Best also said negative rating pressure could result if there is a material shift in risk profile that could potentially undermine the stability and profitability of the company. Financial issues resulting in ratings pressure and affecting the credit profile of the parent could further impact the company’s ratings.