A.M. Best Co. has assigned a financial strength rating of A (Excellent) and issuer credit rating of “a” to Palms Insurance Company, Limited (Palms) (George Town, Cayman Islands). The outlook assigned to both ratings is stable.
The ratings reflect Palms' excellent risk-adjusted capitalization, history of consistently strong operating performance, sound risk management capabilities and conservative balance sheet strategies. The ratings also recognize its history of maintaining sufficient capital and financial resources to support its ongoing obligations.
Partially offsetting these positive rating factors are Palms' limited market scope and high net loss potential stemming from a single, severe occurrence relative to surplus. Nevertheless, this is somewhat mitigated by the company’s excellent loss history, favorable geographic spread of risk and the history of support of Palms’ strong surplus position by its parent, NextEra Energy Capital Holdings, Inc. (NEECH). Somewhat offsetting these positive rating factors are the fact that Palms depends on third parties for processing, servicing and administration. Nonetheless, the senior management of its ultimate parent, NextEra Energy Inc. (NEE) [NYSE: NEE], is intimately involved in these operations.
Palms is a single parent or pure captive insurer wholly owned by NEECH, which in turn is wholly owned by NEE; hence, Palms insures select risks for NEE. Palms accepts insurance risks only from NEE and its affiliates, providing specialized direct and assumed property and casualty coverages, workers' compensation, automobile liability and employers’ liability and property risk. Although Palms participates in a range of coverages for very large risks, these risks are underwritten with tight guidelines and significant loss control measures by the insured affiliates.Palms has consistently produced profitable net operating earnings resulting from underwriting experience and investment income in each year of the past decade through December 31, 2012. Its balance sheet strength has been bolstered through substantial retained earnings. Over the past five years, returns on surplus have averaged 18.7%, despite dividend payments in 2011 and 2010 totaling $40 million to its sole shareholder. A.M. Best believes Palms is well positioned to sustain a superior level of operating performance due to its demonstrated risk management expertise and conservative underwriting criteria, hence the assigned outlook of stable.