A.M. Best Co. announced that it has downgraded the financial strength rating to B++ (Very Good) from A- (Excellent) of the U.K.’s Underwriter Insurance Company Limited, removed the rating from under review with negative implications, where it was placed on March 10, 2003, and assigned a negative outlook.
“This rating action reflects the company’s substantial deterioration in risk-based capital and weak operating performance in 2002, and the challenges associated with the revised strategy recently introduced following a change in management,” said Best, indicating that the company’s “risk-adjusted capital position, based on A.M. Best’s capital model, has fallen below the ‘Excellent’ level.” Best added that it didn’t expect “capital restoration to previous levels” through retained earnings to be likely in the near term.
The bulletin noted that the company posted an operating loss of £21.3 million ($ 33 million) in 2002, which was “substantially worse than anticipated.” That result followed losses in 2001 of £12.4 million ($18.6 million). Best cited “higher expenses, poor claims experience and further reserve strengthening, as contributing factors, and indicated that “a return to profitability will depend on management’s success in executing its revised business plan.”
The bulletin noted that “Management is introducing a wide range of measures to restructure the composition and risk profile of the portfolio, reduce expenses and enhance underwriting controls. A.M. Best views as positive the steps taken to date and will continue its discussions with management to assess the impact of these measures on the company’s prospective operating performance and business profile. The stabilisation of the rating in the near term is subject to an effective implementation of these corrective measures and the maintenance of, at least, the current capital base.”
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