S&P Lowers Cornhill Ratings to “AA-“

October 17, 2000

Standard & Poor’s rating service announced that it had “lowered its long-term counterparty credit and financial strength ratings on U.K. insurer Cornhill Insurance PLC (Cornhill) to double -‘A’- minus from double-‘A’,” and revised the outlook, from negative to stable.

“The lowering of the ratings reflects the company’s weakened operating performance and a decline in business position,”said the announcement. “Factors underpinning the ratings are; Cornhill’s strategic importance to its German-based parent company Alllianz AG (AAA/Stable/A-1+); and strong, albeit diminished capitalization. Cornhill concentrates on the U.K. nonlife market, in which it is currently the fifth-largest company.

S & P cited the company’s poor operating performance in 1999 mainly as a result of increased losses, which pushed its combined ratio to 112.8 percent, and the improbability of a recovery this year as reasons for the ratings change.

It also noted the fact that “significant consolidation in the U.K. nonlife insurance market has created competitors with the advantage over Cornhill of size and stronger business position,” making it considerably smaller than the four largest insurance groups.

The ties and continued support Cornhill has with Allianz remain significant, and insure its overall position. But S&P noted that management faces the problem of trying to maintain, or even increase, Cornhill’s market share, particularly in commercial lines, while trying to return to a more conservative underwriting strategy to reduce losses. It doesn’t see a return to profitability before 2001.

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