Best Rates UK’s Ecclesiastical ‘A’; Upgrades Ansvar Subsidiary to ‘A’

December 21, 2010

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of UK-based Ecclesiastical Insurance Office plc. Best also affirmed the debt rating of “bbb” on £106,450,000 [app. $165 million], 8.625 percent non-cumulative irredeemable preference shares issued by EIO.

In addition Best has removed from under review with positive implications and upgraded the FSR to ‘A’ from ‘A-‘ (Excellent) and ICR to “a” from “a-” of Ansvar Insurance Company Limited, a wholly-owned subsidiary of EIO. The outlook for all ratings is stable.

The ratings of Ansvar have been upgraded “following court approval of the transfer of its general insurance business to EIO,” Best explained. “This will be affected by a Part VII transfer on the first of January 2011. From the beginning of 2011, Ansvar will operate as a business division of EIO rather than a separate subsidiary.

“EIO’s consolidated risk-adjusted capitalization is expected to remain excellent in 2010, in spite of exposure to a high incidence of large loss events during the year. Prospective underwriting earnings are expected to be less volatile following the group’s decision to cease underwriting London market business in the third quarter of 2010, which should lead to a reduction in EIO’s exposure to catastrophes, as well as the sale of the group’s long-term (excluding funeral plan) business in November 2010.”

However, Best also noted that EIO “remains exposed to potential investment earnings volatility due to its relatively high exposure to equity investments (approximately 25 percent total non-life investments in 2010).

“A positive consolidated pre-tax profit is anticipated for 2010, albeit lower than the £79 million [$122.5 million] reported in 2009. Results are likely to be reliant on investment returns, supported by the rebound in equity markets during the second half of the year.

“Technical performance will be affected by a high incidence of large losses, which include losses from weather-related events in Australia, and earthquakes in Chile, Haiti and New Zealand. Furthermore, a rise in EIO’s attritional loss ratio is anticipated, reflecting soft market conditions for core business and a rise in claims activity for certain classes.”

In addition Best noted that EIO maintains a “robust business profile as a specialist in the not-for-profit segment of the market, writing a portfolio of mainly commercial property and liability risks. EIO’s operating environment remains challenging due to the weak pricing conditions for its business and ongoing intense competition from insurers who benefit from larger distribution channels and better economies of scale.”

However, Best said it “believes that EIO’s standing in its core markets is likely to be supported by its specialist expertise in insuring Anglican churches, independent schools and historical buildings, as well as its long-standing relationships with clients.”

Source: A.M. Best

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