AM Best Affirms Credit Ratings of Palms Insurance Company, Limited
AM Best has affirmed the Financial Strength Rating of A (Excellent) and a Long-Term Issuer Credit Rating of 'a' (Excellent) for Palms Insurance Company, Limited, with a stable outlook. This rating reflects Palms' strong balance sheet strength, adequate operating performance, and effective enterprise risk management. The company provides insurance primarily for the energy sector, with a solid capital position and excellent loss history. However, it faces potential volatility due to exposure to low-frequency, high-severity claims, particularly in its renewable energy coverage.
- Financial Strength Rating of A (Excellent) affirmed by AM Best.
- Long-Term Issuer Credit Rating of 'a' (Excellent) with stable outlook.
- Strong balance sheet strength and solid risk-adjusted capitalization.
- Consistent positive operating performance and strong management.
- Exposure to low-frequency, high-severity claims in property coverage.
- Potential underwriting performance volatility due to high net loss potential.
AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Palms Insurance Company, Limited (Palms) (George Town, Cayman Islands). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Palms’ balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The ratings reflect Palms’ solid risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), consistent positive operating performance and conservative balance sheet strategies, as well as its strong management and significant role within the risk management structure of its parent, NextEra Energy Capital Holdings, Inc. (NEECH). The ratings also recognize Palms’ history of maintaining sufficient capital and financial resources to support its ongoing obligations.
Palms currently provides coverage primarily for the energy and utility industry and has high net loss potential stemming from a single, severe occurrence relative to its surplus. This is mitigated somewhat by the company’s excellent loss history, favorable geographic spread of risk and Palms’ historically strong surplus position. Additionally, while Palms depends on third parties for processing, servicing and administration, Palms’ management is involved closely in these operations.
Palms is a single-parent insurer wholly owned by NEECH, which in turn is wholly owned by NextEra Energy, Inc. (NEE) [NYSE: NEE]. Palms currently primarily accepts insurance risks from NEE and its affiliates, providing specialized direct and assumed property, casualty coverages, workers’ compensation, automobile liability, employers’ liability. Effective January 2021, Palms also provides coverage to non-affiliated entities. Palms has expanded and enhanced its underwriting structure with necessary talent and expertise to support the expansion into third-party business. Although Palms participates in a range of coverages of its parent company for very large risks, these risks are underwritten with tight guidelines and significant loss control measures by the insured affiliates, as evidenced by favorable loss ratios over the past five years. Nonetheless, prospective underwriting performance remains subject to volatility, due to Palms’ exposure to low frequency, high severity claims in its property program, which includes coverage for NEE’s renewable energy interests and the newer third-party coverage.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated in the United States and 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 media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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