AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a” (Excellent) of Palms Insurance Company, Limited (Palms) (George Town, Cayman Islands). Concurrently, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of Palms Specialty Insurance Company, Inc. (Palms Specialty) (Delaware). The outlook of these Credit Ratings (ratings) is stable.
The ratings of Palms reflect its balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The ratings of Palms Specialty reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM.
Both companies are wholly owned by NextEra Energy Capital Holdings, Inc. (NEECH), which, in turn, is wholly owned by NextEra Energy, Inc. (NextEra) [NYSE: NEE]. Palms is a single-parent insurer, which underwrites insurance risks of NextEra and its affiliates, providing specialized direct and assumed property, casualty, workers’ compensation, automobile liability and employers’ liability coverages.
The ratings reflect Palms’ strongest 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, NEECH. The ratings also recognize Palms’ history of maintaining sufficient capital and financial resources to support its ongoing obligations.
Palms Specialty was formed in 2022 as a specialty insurer focusing on the U.S. excess and surplus lines accounts, providing coverage for specialty property, professional lines and other specialty lines with manageable gross limits. The ratings reflect Palms Specialty’s strategic importance to its parent company.
The very strong balance sheet assessment is based on Palms Specialty’s supportive risk-adjusted capital that meets AM Best’s guidelines for newly formed organizations. AM Best expects that Palms Specialty will continue to maintain supportive risk-adjusted capital levels throughout its start-up phase, based on balance sheet projections provided by Palms Specialty’s management. AM Best assesses Palms Specialty’s operating performance as adequate, based on its clearly defined business plan and income statement projections that contemplate a level of implementation and execution risk for a newly formed entity. AM Best views Palms Specialty’s business profile as limited, given the execution risk associated with a start-up entity and the degree of competition in its selected market. This risk is mitigated somewhat by the management team’s experience in the targeted business class, along with the parent company’s brand and track record of success. Palms Specialty is expected to benefit from the parent company’s established and tested ERM framework.
Negative rating action could occur if Palms Specialty’s actual operating performance or balance sheet strength materially differ to the downside from its initial business plan.
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