A.M. Best Co. announced that it has assigned a financial strength rating of “B++” (Very Good) to U.K.-based London General Insurance Company Ltd. (LGI) with a stable outlook.
“The rating reflects the company’s good business profile with a strong position in the U.K, Irish and Dutch warranty and creditor protection sectors, strong operating performance and improving risk-adjusted capitalisation, said Best. “An offsetting factor is the company’s limited business diversification, despite a good and growing geographical diversification.”
LGI has a strong market position as a creditor and warranty insurer “distributing its products mainly through agreements with manufacturers, retailers and financial institutions offering single and multi-year policies,” the report continued. “Competitive pressures in some of the sectors in which LGI operates and the company’s increased focus on optimising return on capital employed are likely to slow down overall premium growth (10 percent in 2003). This will be somewhat offset by LGI’s introduction of innovative products during 2003.” Best said it expects 8 percent growth at year-end 2004.
The main factors in the company’s financial performance in 2004 and the basis for LGI’s strong operating performance are based on Best’s expectation of an “increase in net premium retention and the combined ratio falling to below 80 percent (driven by a fall in operating expenses).”
Best also said it “expects LGI’s risk-adjusted capitalisation to improve gradually as a result of lower premium growth and anticipated retained earnings. The counter party risk arising from high levels of deferred acquisition costs (typical for the warranty and creditor sectors) is deemed to be low. LGI holds above market average levels of reinsurance recoverables with non-rated companies (expected to be approximately 13 percent of reinsured technical provisions in 2004), although A.M. Best acknowledges this to be largely as a result of LGI’s cessions to its insureds’ captives.”
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