A.M. Best Co. announced that it has affirmed the financial strength rating of “B++” (Very Good) of the U.K.’s London General Insurance Company Limited (LGI), which is ultimately owned by Aon Corp., with a stable outlook.
“The rating reflects LGI’s strong market position, solid operating performance and very good risk-adjusted capitalisation supported by solid net retained earnings,” said Best.
The impact on the company’s sales as a result of the “potential commission disclosure that could result from the Office of Fair Trading’s current review of creditor products” is an offsetting factor.
“LGI maintains a strong position in certain niche sectors including extended warranty, creditor protection insurance and technology insurance,” Best continued. It also said it “believes that LGI’s gross written premium is likely to increase marginally to £330 million ($574 million) at year-end 2005 (compared to £327.5 million [$631 million] in 2004), as the production of two new contracts will be replacing the premium lost due to LGI’s decision in 2004 to pull out of a large contract and the cancellation of a fronting agreement.”
However, the report also notes that “sales of the new products introduced last year are likely to remain below original expectations. The combined ratio will decline by seven percentage points to approximately 75 percent, largely due to lower acquisition expenses driven by the structure of the new business partnerships.
“Financial performance is expected to remain solid, and A.M. Best anticipates retained earnings to improve to approximately £8 million ($14 million) at year-end 2005 (compared to £7 million [$13.6 million] in 2004).”
Best also said it “believes that LGI’s risk-adjusted capitalisation will improve as the reduction in reinsurance recoverables leads to a reduction in credit risk.”