Best Rates Faraday Re ‘A++’

November 7, 2006

A.M. Best Co. has affirmed the financial strength ratings of “A++” (Superior) and the issuer credit rating of “aa+” of U.K.-based Faraday Reinsurance Co. Limited, a subsidiary of Germany’s Cologne Re Group, which is in turn part of Berkshire Hathaway’s General Re. The outlook for both ratings is stable.

Not unsurprisingly Best noted that the “affirmation of Faraday’s ratings reflects the guarantee provided by the parent company,” which, Best expects to be amended to contain a notice period of one year, in line with its rating methodology.

“The ratings also consider Faraday’s strengthening balance sheet, stable profits and adherence to stringent underwriting discipline,” the bulletin continued. “Faraday maintains strong stand-alone risk-adjusted capitalization and is likely to continue to improve in 2006 from full retention of cumulative earnings, extremely low level of reinsurance dependency and a reduction in capital required to support underwriting arising from a fall in anticipated net premiums written in 2006.”

Best said it “expects excellent returns on net premium of 32 percent in 2006, compared to 36 percent in 2005. Although a higher combined ratio in the region of 100 percent is likely (compared to 90 percent in 2005), underwriting performance will continue to be enhanced by investment returns. Going forward, A.M. Best anticipates Faraday’s reserving approach to remain prudent.”

The rating agency also indicated that it “anticipates that gross premiums written will fall 20 percent in 2006 as the company maintains underwriting discipline in a softening market. During 2005, the company’s account expanded to include a direct employers and public liability account, which represents 37 percent of 2006 gross premiums, in addition to the existing liability reinsurance account.

“Despite Faraday’s focus on liability lines, A.M. Best believes the company’s more volatile subscription market reinsurance account is balanced by sourcing direct small ticket SME business through delegated authorities located around the country. A.M. Best believes that a disadvantage of the company’s specialist approach is the concentration of risks written in the long tail liability sectors, where awards inflation can materially impact performance in future years.”

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