Best Affirms BP Captive Jupiter Insurance ‘A’ Ratings

May 21, 2012

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

The ratings reflect Jupiter’s “strong risk-adjusted capitalization and good underwriting performance, said Best. However the captive’s “high level of risk retention, as well as its concentrated investment portfolio, which is held mostly with its parent, BP,” should be considered as offsetting factors.

Best noted that “Jupiter’s risk-adjusted capitalization deteriorated in 2011, following an increase of 71 percent in net premiums written to $1.948 billion (2010: $1.140 billion), which was largely precipitated by an increase in the underwriting limit.” Over the past few years, risk retention per event has increased significantly from $700 million in 2010 to $1.50 billion as of April 1, 2011. “Nevertheless,” Best said, “risk-adjusted capitalization is expected to remain at a strong level over the medium term.

“In 2011, the company reported an improvement in its technical performance with an underwriting profit of $1.68 billion (2010: $461 million). This result was largely driven by the increase in earned premium and the reduction in net claims incurred, as a result of a lack of large claims during the year. Given the nature of business underwritten, technical results can be volatile year on year. The significant growth in Jupiter’s underwriting portfolio in recent years could potentially contribute to the underlying volatility inherent in the lines of business underwritten.”

Best explained that Jupiter “has over 99 percent of its asset base (2011: $7.952 billion) invested in its parent via two discount notes of three months and 30-day duration. Despite Jupiter’s lack of reinsurance protection and large underwriting limit,” Best said it “considers that the company’s capital base could adequately absorb a small number of major claims.

“Following the Gulf of Mexico oil spill in 2010, improvements in BP’s risk management and safety are ongoing. These improvements could potentially have a positive impact on Jupiter’s claims experience in the long term.

“Upward rating actions are unlikely at present.

“Downward rating actions may occur if there were a significant deterioration in the company’s risk-adjusted capitalization and/or a material increase in the retention levels on Jupiter’s fronted program (COMET). Additionally, any deterioration in the credit rating of BP could lead to negative actions being taken on Jupiter’s current rating.”

Source: A.M. Best

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