A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of the Luxembourg-based West of England Ship Owners Mutual Insurance Association (WOE or the Club); however, the outlook on both of the ratings remains negative.
The ratings reflect WOE’s “excellent risk-adjusted capitalization and its legal right to make supplementary calls to its members, as well as its good business profile, which benefits from its membership in the International Group of P&I Clubs (International Group),” Best explained.
However, the rating agency pointed out that “underwriting performance is weak and investment earnings are volatile due to the high proportion of equities in the Club’s investment portfolio.”
Best said the negative outlook reflects its “expectation that earnings will remain weak and subject to volatility in the near term.” Best also said it would “continue to closely monitor the impact of actions taken by management to improve the Club’s performance.
“WOE has a record of poor underwriting results. Over the last two years, the Club has sought to improve performance by reducing its exposure to members with adverse claims experience, as well as to certain high risk operating sectors and geographical markets. The Club has also achieved modest increases in its members’ advance call. For the year ending February 2012, a reduced technical loss of about $15 million is expected (2011: loss of $37 million).”
Best also indicated that the Club’s “investment yield for the year ending February 2012 is expected to be significantly lower than the 7 percent achieved in 2011, reflecting economic uncertainty and low interest rates. Although the Club has reduced its exposure to equity and absolute return funds, investment earnings are likely to remain volatile, with these assets representing 22 percent of the company’s total investments as at September 2011 (February 2011: 32 percent).”
On a more positive note, Best said “WOE has a good business profile, which benefits from its membership in the International Group. However, should it become necessary for the Club to make a further supplementary call to its members, following the significant unbudgeted calls made in 2006 and 2008, it is likely that WOE’s profile within the International Group would be weakened.”
Source: A.M. Best
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