AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of Isle of Man-domiciled National Grid Insurance Company Limited (NGICL). The ratings outlook is stable.
NGICL is the captive owned by National Grid, with AM Best saying the company is well-integrated into the group’s overall risk management framework, providing a broad range of property damage business interruption (PDBI), casualty and cyber cover to meet the company’s insurance needs.
NGICL has a track record of adequate operating performance, generating positive net results in seven of the past 10 years (2014-2023), underpinned by good underwriting performance over the cycle.
However, the captive reported significant losses on its PDBI book in financial years 2021 and 2022, which is reflected by the deteriorated five-year (2019-2023) weighted average combined ratio of 106%.
AM Best expects the captive’s underwriting performance to be robust over the longer-term, albeit subject to potential volatility given its high net line sizes relative to its premium base, supported by corrective actions taken by management following recent losses.
The captive’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by AM Best’s capital adequacy ratio (BCAR).
The ratings agency expects the captive’s BCAR scores to remain comfortably above the minimum required for the strongest assessment, reflecting its strategy to maintain sufficient capital buffers to absorb potential volatility from its exposure to low frequency, high severity losses.
A partially offsetting balance sheet strength factor is the captive’s reinsurance dependence, driven by the large policy limits needed by National Grid.
Counterparty credit risk is mitigated partly by the good credit quality of NGICL’s reinsurance panel.