Best Affirms Brit’s ‘A’ Ratings

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of the UK’s Brit Insurance Limited (BIL). Best also affirmed the ICR of “bbb” of Brit Insurance Holdings N.V. (BIHNV), based in the Netherlands, the ultimate parent of the Brit Insurance group of companies, as well as the debt rating of “bbb-” on the £135 million [$202 million] fixed rate subordinated notes, issued and guaranteed by the intermediate holding company of BIL, Brit Insurance Holdings Ltd., and now an obligation of BIHNV. The outlook on all of the ratings remains stable.

“BIL’s ratings continue to reflect strong risk-adjusted capitalization, on a stand-alone basis and on a consolidated basis at BIHNV,” Best explained. Earnings at BIL are “expected to remain positive in the near term, although largely supported by investment income from its conservative portfolio, comprising predominantly cash and highly rated fixed income securities.”

However, Best also indicated that pre-tax profit in 2010 is “likely to be affected by exposure to major loss events in the first half of the year and a reduction in investment earnings. Additionally, BIL’s expense ratio is expected to increase, principally due to higher quota share cessions to the group’s captive reinsurer, Brit Insurance (Gibraltar) PCC Limited (Gibraltar), which will reduce net premium income.”

As an offsetting factor, Best cited the “weak performance of the UK business unit. Results for this business are likely to remain under pressure due to the effect of intense competition on already weak pricing.

“Furthermore, the availability of prior year reserve surpluses to support technical performance is likely to diminish. Although BIL is taking positive actions to improve results by reducing exposure to risks affected by the economic downturn and non-renewing certain lines of weaker performing business,” Best said it doesn’t “expect the UK division to make a meaningful contribution to BIL’s profitability in the near term.”

Best added that overall BIL has “a good market profile, which benefits from the Brit Insurance brand in the London market. The majority of premium is written through its UK business unit (approximately 60 percent of gross written premiums) and largely comprises small to medium-sized commercial and personal lines risks.

“The balance of the account is written through the global markets and reinsurance business units. BIL’s competitive position in the UK market is supported by its network of brokers, regional offices and its electronic trading capabilities, which increase access to business in this saturated market. However, strong competition from insurers that benefit from highly efficient distribution and better economies of scale continues to constrain the company’s ability to expand profitability within this market.”

Source: A.M. Best