A.M. Best Affirms Cornhill Insurance ‘A++’ (Superior) Rating

October 8, 2002

A.M. Best Co. announced that it has affirmed the A++ (Superior) financial strength rating of Cornhill Insurance PLC, the U.K. subsidiary of Germany’s Allianz Group, with a negative outlook.

Best’s report indicated that the rating reflected its view of Cornhill as a core subsidiary of its ultimate parent, Allianz (rated A++ with a negative outlook). The company has an “excellent domestic business position” and maintains “an excellent risk-based capital base.” The main offsetting factor, said Best is “Cornhill’s historically weak, although improving, underwriting performance.”

It noted that Cornhill ‘s status as a core entity for Allianz is evidenced by its importance within the group. It’s the fourth largest non-life writer in the Allianz group, accounting for approximately 6% of the group’s gross premium. “In addition, Cornhill provides valuable expertise in engineering and warranty business to the Allianz group. The company will be renamed Allianz-Cornhill in early 2003, reflecting Allianz’s strong commitment to the company and Allianz’s world-wide branding strategy,” said the bulletin.

Regarding Cornhill’s business position Best’s report said that it “benefits from a strong brand name and is enhanced by its membership in the Allianz group.” It noted that “Cornhill is a leading player in the UK non-life insurance market” with a 20% increase in premiums last year to £1.216 billion (just under $ 1.9 billion).

Cornhill’s operating performance, while weak, is improving said A.M. Best. It posted pre-tax losses in 2000 and 2001 “mainly due to non-life underwriting losses—and unrealised losses on equities.” Best expects “the combined ratio to improve to 101% at year-end 2002 from 102.5% at year-end 2001 and 115.9% at year-end 2000, due to better market conditions, refocus on core UK domestic business lines and an increasing emphasis on underwriting discipline.”

The report also noted, however, that there would be little improvement in returns on investments due to the prevailing low interest rates and the depressed equity markets.

Allianz supported Cornhill with an injection of £155 million ($ 240 million) at the end of 2001 in order to compensate for the loss in 2000 and the expected loss in 2001. Best ‘s report concluded that it “expects capital requirements will be somewhat alleviated by the reduced exposure to international and MAT business,” and it forecast continuing improvements in underwriting results.

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