AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Jupiter Insurance Limited (Jupiter) (Guernsey), a captive insurer of BP p.l.c. (bp) [NYSE: BP], an integrated global energy company. The outlook of these Credit Ratings (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 factor is the captive’s concentrated investment portfolio, as well as its high underwriting limits provided to several facilities, which could result in volatility in the captive’s solvency position in the event of very large losses. 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 USD 6.2 billion at year-end 2022 supporting the captive’s high maximum line size of USD 1.5 billion. Jupiter does not purchase any outward reinsurance cover, supporting bp’s current strategy to retain risks when possible. Investments are highly concentrated, with 99% accounted for by short term intra-group term deposits placed with BP International Limited and guaranteed by bp at the end of 2022. 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 (2018-2022), demonstrated by a weighted average return-on-equity ratio of 8.1%, mainly driven by strong underwriting profits. Operating performance is subject to 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. This was evident in 2022, when a fire in one of bp’s refineries in Toledo drove the combined ratio up to 108.9%, compared with a five-year weighted average combined ratio of 20.2% (2018-2022), as calculated by AM Best.
Jupiter’s business profile assessment reflects its key role in bp’s overall risk management framework, as its principal captive insurer. Jupiter’s underwritten risks consist mainly of onshore and offshore property damage and business interruption cover. Declining insured values due to bp’s divestments, lower oil prices and soft market conditions have put significant downward pressure on Jupiter’s premium income in recent years, except in 2022 when some of these trends reversed.
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 significant reinsurance to its sister company, Saturn Insurance Inc.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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