Best Assigns Ratings to Novae Insurance Co./Novae Group

A.M. Best Co. has assigned a financial strength rating (FSR) of “A-” (Excellent) and an issuer credit rating (ICR) of “a-” to Novae Insurance Company Limited (NICL), a newly formed insurer based in the U.K. The outlook is stable.

In a separate bulletin Best announced that it has assigned an issuer credit rating (ICR) of “bbb-” to the U.K.-based Novae Group Plc (NG), the new ultimate non-operating holding company of Novae Syndicates Limited (NSL) and Novae Insurance Company Limited (NICL). Best also upgraded the debt rating to “bbb-” from “bb+” on the £50 million ($92.2 million) convertible bonds (due in 2008) that have become obligations of NG. In addition Best said it has “affirmed the ICR of ‘bb+’ on Novae Holdings Plc (NH) (formerly known as SVB Holdings Plc) (United Kingdom), the debt ratings of ‘bb+’ on the $15 million and $10 million floating notes and ‘bb’ on the $11 million subordinated floating notes, all due in 2034 and issued by NH. The ratings on the syndicates managed by NSL remain unchanged. The outlook for all these ratings is stable.”

Concerning NICL, Best said it “believes that initial capital of £100 million ($190 million) and likely future retained earnings based on realistic assumptions will be sufficient to support excellent risk-adjusted capitalization. While A.M. Best believes NICL may not achieve its initial objectives for premium volumes, the maximum likely levels have been factored into analysis, and the company’s anticipated performance has been extensively stress tested.”

Best also indicated that “NICL’s future financial performance will be good based on the performance of the existing account written by Novae Underwriting Limited (a service company) (NUL), on behalf of syndicates managed by Novae Syndicates Limited. This account principally comprises U.K. specialist liability business, and it will now be written by NICL.” Best said it “anticipates that NICL will achieve net loss ratios in the range of 50 percent to 55 percent, although there is likely to be a deteriorating trend toward the upper end of this range in the company’s early years of operation driven by increasing competition. Although A.M. Best believes NICL’s operating expenses are likely to be high, the company is expected to maintain a combined ratio below 100 percent, supporting modest underwriting profits from 2008.”

Best also noted its belief that “NICL will benefit from the profile of the Novae brand in the U.K. market developed by NUL. NICL will continue to develop the existing NUL portfolio of specialist liability business, emanating largely from the United Kingdom, comprising professional indemnity, medical malpractice, directors’ and officers’ liability and general liability. Nevertheless, business volumes are expected to be relatively modest with net premiums written likely to be below £70 million ($133 million) in 2007, the company’s first full year of operation.”

Concerning its ratings on the Novae Group, Novae Holdings and related entities, Best said “the rating of NG reflects its established source of earnings from the group’s existing Lloyd’s syndicates, in addition to anticipated earnings from NICL, the group’s newly established FSA-regulated company. New capital raised to support NICL will be segregated from existing capital supporting the group’s Lloyd’s business. The upgrade in the £50 million [$92.2 million] convertible bonds reflects the transfer of this obligation from NH to NG.”