Best Affirms EIO ‘A-‘ Rating

October 21, 2005

A.M. Best Co. announced that it has affirmed the “A-” (Excellent) financial strength rating of the U.K.’s Ecclesiastical Insurance Office plc (EIO) and assigned an issuer credit rating of “a-” with a stable outlook.

“The ratings reflect EIO’s excellent risk-adjusted capitalisation, excellent underwriting performance and strong business profile within its niche market,” said Best. “An offsetting factor continues to be the company’s high exposure to equities.”

Best said that in its opinion “EIO is likely to continue to consolidate its excellent risk-adjusted capitalisation in 2005, supported by strong retained earnings and the placement in April 2005 of irredeemable preference shares, with a nominal value of GBP 19 million (USD 33 million), for GBP 23 million (USD 40 million).” Best projects a 21 percent increase to GBP 255 million (USD 446 million) in shareholders’ funds for year-end 2005, and also believes that this improvement is partly cyclical, reflecting the benefit of strong market conditions for EIO’s specialist lines.

Best indicated that it believes “EIO will continue to produce excellent underwriting returns in 2005. EIO’s position as a niche insurer is expected to partially insulate it from the softening market, allowing it to maintain its combined ratio in the range of 90 percent to 95 percent in 2005 and 2006.”

The rating agency noted, however that this “represents a deterioration from 2004’s combined ratio of 84 percent as claims return to a more normal level after a particularly benign period in 2003 and 2004.

“EIO’s business profile in the niche church and charity sectors remains excellent. A.M. Best believes the company’s consistently high retention rate (anticipated to be over 90 percent for 2005) in its core portfolios reflects its customer-focused approach. EIO also benefits from high penetration rates in other specialist areas such as independent schools and care homes, and A.M. Best anticipates that the company will continue to successfully develop its commercial portfolio with a focus on risks related to its core business.”

Commenting on EIO’s exposure to equities as an offsetting factor, Best said it “anticipates it will remain at approximately 25 percent of 2005’s total invested assets (26 percent in 2004),” and that while this “has supported relatively high yields (8.3 percent in 2004), it exposes the company’s future earnings to volatility.”

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