A.M. Best-Rated European Captives Are Stable, According to Report

A recent A.M. Best report, titled European Captives—Building Block Rating Considerations, describes the main rating considerations the rating agency uses for captives with European parent groups (European captives). According to the report, the A.M. Best European captive ratings have been stable through the past year, with most of the ratings affirmed and their stable outlooks maintained.

The report, as of October 26, includes European parent groups with captives domiciled in Bermuda, European Union countries, Switzerland, the Isle of Man, and Guernsey and encompasses the following A.M. Best-rated captive insurance companies: Rembrandt Insurance Co. Ltd., Sigurd Rück AG, GreenStars BNP Paribas S.A., Jupiter Insurance Ltd., National Grid Insurance Company (Isle of Man) Ltd., Eni Insurance Designated Activity Co., Nova Casiopea Re S.A., Private Rating, Intercona Re AG, Builders Reinsurance S.A., Enel Insurance N.V., Delvag Versicherungs-AG, and Solen Versicherungen AG.

While some of the companies profiled in the report are not considered captives by their regulators, or do not describe themselves as such, A.M. Best said the report covers those organizations to which it applies specific considerations for rating captive insurers laid out in its "alternative risk transfer" criteria.

Detailed in the report are the key rating considerations as they apply to the European captives, which include balance sheet strength, operating performance, business profile, enterprise risk management, comprehensive adjustment, and rating lift/drag from the wider group.

All of the European captives rated by A.M. Best have balance sheet strength assessments in the two highest categories: strongest and very strong, underpinned by risk-adjusted capitalization, which tends to be at the strongest level as measured by Best's Capital Adequacy Ratio (BCAR). The robust risk-adjusted capitalization of the rated captives is also reflected in their excellent regulatory solvency ratios, with available capital usually exceeding capital requirements significantly, according to the report.

Mathilde Jakobsen, director, analytics at A.M. Best, said, "The European parents of captives rated by A.M. Best are supportive of their high levels of risk-adjusted capitalization, recognizing that the captives should be able to absorb worst-case scenario losses without requiring additional funding."

Ms. Jakobsen continued, "The report states the European captives rated by A.M. Best fulfill the majority of the parent organization's insurance needs, with relatively little primary cover placed in the external market. This ensures that the parent organization has access to claims data and loss information across its different business segments and perils."

George Athanasopoulos, financial analyst with A.M. Best, said, "Captives are typically not at the forefront of product evolution. Nonetheless, as insurance products evolve, captives do consider adding new types of cover to their offerings to serve better their client organizations. For example, A.M. Best notes some captives have started to offer cyber cover to their parent groups over the past couple of years, but this has only happened after these products were well established in the external market."

A complimentary copy of this report is available on the A.M. Best website with site login registration.

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