Best Assigns ‘B++’/’bbb’ Ratings to Germany’s WUBA

A.M. Best Co. announced that it has assigned a financial strength rating of “B++” (Very Good) and an issuer credit rating of “bbb” to German insurer Württembergische und Badische Versicherungs-AG (WÜBA). The outlook for both ratings is stable.

“The rating of WÜBA reflects its very good risk-adjusted capitalisation, moderate business profile and good operating performance,” said Best. “An offsetting factor is A.M. Best’s concern about the length of the investment horizon of the sole shareholder, J.C. Flowers & Co., LLC.”

Best noted: “WÜBA’s risk-adjusted capitalisation has been restored to a very good level through the build up of equalization reserves and reduction of its portfolio following several years of underwriting losses, especially in commercial property and marine hull insurance.” The rating agency “anticipates that the company’s capitalisation will continue to be supported by retained earnings of approximately €2.5 million ($3 million) in 2005 (compared to €1.4 million [$1.7 million] in 2004) and further allocation to the equalisaton reserves, albeit on a smaller scale due to the restructuring of its reinsurance programme.”

Best described WÜBA as a “mid-sized German commercial line insurer” with a “moderate” business profile. It also indicated that the “company is likely to reduce its gross premium income by a further 7 percent to approximately €165 million ($192 million) in 2005. The decline is due mainly to the further cancellation of unprofitable business, particularly in the property and engineering business.

“The company’s underwriting results significantly improved in 2004 with an excellent combined ratio of 95.6 percent as WÜBA continues to adhere to strict underwriting controls.” However, Best said it “expects a deterioration of the net combined ratio to approximately 98 percent in 2005 due mainly to the effects of reinsurance, while the gross combined ratio is likely to further improve to approximately 92 percent (compared to 93.8 percent in 2004).

“The rating also factors A.M. Best’s concerns regarding the length of the investment horizon of J.C. Flowers & Co., LLC given the larger acquisitions the shareholder has made in the past.”