A.M. Best Assigns Ratings to Spirit Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has assigned a financial strength rating of A (Excellent) and issuer credit rating of “a” to Spirit Insurance Company (Spirit) (Burlington, VT). The outlook assigned to both ratings is stable.

The ratings of Spirit are based on its excellent capitalization, a history of profitable business written from a predecessor captive, as well as the position the company holds as the captive insurer for its ultimate parent, Phillips 66. Phillips 66 will become a publicly traded company under the ticker symbol PSX and is the result of ConocoPhillips spinning off the downstream portion of its business to the public. The ratings also consider the level of commitment on the part of its parent, whose management incorporates Spirit as a core element in its overall risk management program. Partially offsetting these positive rating factors is Spirit’s exposure to large losses due to the limits offered on its policies as well as its significant dependence on reinsurance protection.

The business that will be written by Spirit has a history of strong underwriting results and operating returns. The company’s loss experience has remained favorable due in part to the strong loss control programs at the parent. Phillips 66 will conduct annual reviews of its potential loss exposures through a specialist in industrial risks. A single occurrence could result in a large loss that approaches Spirit’s limits. However, the company has the capital to fund claims in the event of a reinsurance recovery problem, and it does participate in the U.S. federal program for terrorism coverage, the Terrorism Risk Insurance Program Reauthorization Act of 2007. Although the majority of Spirit’s capital is loaned to its parent, there is limited counterparty risk due to the affiliation of the two companies.

Key rating triggers that could result in positive rating actions would be Spirit generating consistent net income, limited losses and meeting and/or exceeding its business plan over the long term.

Key rating triggers that could result in negative rating actions would be Spirit generating consistent net losses, numerous large claims and/or not executing its business plan over the long term.

A.M. 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 insurance market, please visit www.ambest.com/captive.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Alternative Risk Transfer (ART)”; “Evaluating Non-Insurance Ultimate Parents”; “Rating Members of Insurance Groups”; “Rating New Company Formations”; “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; and “Understanding Universal BCAR.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Nick Dranchak
Senior Financial Analyst
908-439-2200, ext. 5629
[email protected]
or
Steven Chirico, CPA
Assistant Vice President
908-439-2200, ext. 5087
[email protected]
or
Rachelle Morrow
Senior Manager, Public Relations
908-439-2200, ext. 5378
[email protected]
or
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
[email protected]

Source: A.M. Best Co.