Best Revises Outlook on BP’s Jupiter to Stable; Affirms Ratings

A.M. Best Europe – Rating Services Limited has revised the outlook to stable from negative and affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Guernsey-based Jupiter Insurance Limited, a captive of BP plc, an integrated global oil and gas company.

The ratings reflect Jupiter’s “strong level of risk-adjusted capitalization and good underwriting performance,” according to Best. As offsetting factors Best cited Jupiter’s “high level of risk retention and its concentrated investment portfolio.”

Best explained that it had revised the outlook as a “result of an improvement in the position of BP, given the reduction in uncertainty regarding the Gulf of Mexico (GoM) oil spill in 2010.

In addition Best noted that Jupiter’s “underwriting limit has increased significantly over recent years,” with risk retention per event going from $500 million in 2008 to $1.5 billion as of April 1, 2011. This has been matched by a noteworthy increase in gross premium income, from $759 million in 2008 to somewhere in the region of $2 billion in 2011.

“Despite a concentrated investment portfolio, high underwriting limit and a lack of reinsurance protection,” Best said it considers that Jupiter is “likely to maintain a strong level of risk-adjusted capitalization over the medium term. Capitalization is supported by a large absolute capital base, equal to $6.1 billion at 31 December 2010. At the same date, Jupiter had over 99 percent of its asset base ($6.4 billion) invested into its parent via a discount note of relatively short duration.”

Best also pointed out: “Although Jupiter does not purchase any reinsurance protection and risk retention is high at $1.5 billion for any one event (or around 25 percent of total capital), Best considers that the company’s capital base could adequately absorb a small number of major claims.”

The report added that in 2010, “despite an incurred loss of $590 million following BP’s GoM oil spill, Jupiter maintained a strong level of profitability for the financial year, with underwriting profits of $466 million and a combined ratio of only 59.4 percent.” Best also said it anticipates that a “good level of underwriting performance will be maintained in future years. However, given the significant growth in Jupiter’s underwriting portfolio in recent years, A.M. Best will monitor results closely.”

From Best’s point of view “the position of Jupiter’s parent, BP, appears to be gradually improving following the catastrophic well blowout and oil spill in the GoM in 2010. Although significant uncertainties remain over both the ultimate financial and reputational impact of the incident on BP, the oil well was successfully sealed and the group was able to absorb a pre-tax charge of $40.9 billion. Furthermore, increased attention on safety and risk management processes at BP could potentially have a positive impact on Jupiter’s claims experience over the longer term.”

Source: A.M. Best

Topics Trends Energy Underwriting Oil Gas