Best Affirms Jupiter Insurance ‘A+’ Rating

February 23, 2004

A.M. Best Co. announced that it has affirmed the financial strength rating of “A+” (Superior) of Jupiter Insurance Limited (Guernsey), and has maintained its stable outlook.

“The rating reflects Jupiter’s superior capital strength and operating performance. An offsetting factor is the restricted business diversification driven by Jupiter’s status as a single parent captive of BP plc, an integrated oil and gas company,” said Best.

It noted that “Jupiter has a superior capital position, according to A.M. Best’s risk-adjusted capital model. The company follows a conservative policy of maintaining capital of at least four times its estimated maximum loss (EML). The 2004 EML is expected to increase from USD 375 million to USD 500 million as Jupiter is to insure some of the risks currently covered directly by BP.” The company recently received a £500 million ($930 million) capital injection, which is invested in “a tradable BP discount note that matures quarterly and has an implied annual percentage rate of 3.98 percent.” Best said it “believes that this discount note provides a good balance between investment security and yield. Concentration in counterparty risk has been fully factored into the rating given that the discount note accounts for more than 95% of Jupiter’s investments.”

The rating agency also regards Jupiter’s current and prospective operating performance as superior with after tax profits for 2003 estimated at £184 million (USD 342 million) compared to £98.3 million ($ 1838 million) at year-end 2002. Best anticipates that the company will report underwriting profits of approximately £130 million ($242 million) for 2003. “This indicates a stable year-on-year performance when considering that the underwriting profit of GBP 53.2 million (USD 85.4 million) reported in 2002 was impacted by reserve strengthening of GBP 38 million (USD 61 million) and exceptionally high unearned premium provisions stemming from the company’s decision to change the renewal dates in many contracts. Profitability is expected to improve further in 2004, reflecting increased investment returns,” said the announcement.

Best noted, however, that “Jupiter’s business generation is solely dependent on BP, in line with single parent captives. In addition, Jupiter is further restricted because of BP’s preference to insure only when required by local regulatory authorities or contractual obligations. As a result, over 90 percent of Jupiter’s premium is originated from a single contract. There are no plans to extend coverage to third party risks.”

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