A.M. Best Co. announced that it has affirmed the A- (Excellent) financial strength rating of Sweden’s Erika Insurance Ltd. (publ). “The outlook remains negative, “said Best, “factoring in uncertainties being faced within the travel sector.”
Best noted that the rating “reflects the restoration of Erika’s risk-adjusted capitalisation,” as the rating agency had anticipated, and the “stabilisation of the operating performance following the divestment of the company’s third-party business. However, the company’s financial strength continues to be offset by its limited business profile. Erika’s ultimate parent is EF Education (“EF”), the largest language tour operator worldwide.”
Best said it believes the restored capital situation “will remain stable while the company’s current strategy is executed. Underwriting losses from third-party business and from equity exposure had caused a deterioration in Erika’s capital for the past two years. Erika has successfully exited all non-EF related business and has adopted a more conservative investment approach, focusing on high quality fixed-income instruments after the full liquidation of its entire equity portfolio in 2003.”
Best said that “following the divestment of the poorly performing third-party account, A.M. Best expects Erika’s technical account to continue to improve during 2004 with a loss ratio in the range of 45-50 percent.”
As a result of this restructuring, Best noted that, “Erika now writes solely travel insurance for EF clients. This has led to a significant reduction in gross premium of 45 percent. Although a moderate increase in EF business is forecast for 2004, A.M. Best believes that conditions in the travel sector remain challenging, limiting Erika’s business prospects.”
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