Best Downgrades Brit Insurance Ratings; Placed on Review/Negative

April 5, 2012

A.M. Best Europe – Rating Services Limited has downgraded the financial strength rating to ‘A-‘ (Excellent) from ‘A’ (Excellent) and the issuer credit rating (ICR) to “a-” from “a” of UK-based Brit Insurance Limited (BIL), and has placed the ratings under review with negative implications.

Best has also placed the ICR of “bbb” of Netherlands-based Brit Insurance Holdings B.V. (Brit Insurance), the ultimate parent of the Brit Insurance group of companies, under review with negative implications.

In addition Best placed under review with negative implications the debt ratings of “bbb-” on the £135 million [$215 million] fixed rate subordinated notes, originally issued and guaranteed by the intermediate holding company of BIL, Brit Insurance Holdings Ltd (United Kingdom), and now an obligation of Brit Insurance.

Best explained that it has taken the rating actions for BIL following Brit Insurance’s announcement that it has entered into a definitive agreement to transfer the renewal rights, operations and assets of its UK regional business to QBE Insurance (Europe) Limited. The transaction is expected to be completed by April 13, 2012 and “will substantially diminish BIL’s business profile. There will be no transfer of historical business.”

Best added: “Since the completion of a strategic review by Brit Insurance of its underwriting platforms in December 2011, BIL’s underwriting portfolio has comprised solely of the group’s UK regional business. BIL is not expected to write new business in the foreseeable future.

“In addition, Brit Insurance has announced that it will undertake a further strategic review of options for BIL’s future.” Best therefore indicated that BIL’s ratings would “remain under review with negative implications,” pending Best’s assessment of “management’s future plans for the company and the impact that any possible group or capital restructuring may have on its financial strength.”

Best said it “expects the group’s strategic review to complete within the next four months, at which point it is expected that the under review status will be resolved.”

Best also explained that it has placed the rating of Brit Insurance under review as it “needs to evaluate the impact of any possible capital restructuring on the group’s consolidated risk-adjusted capitalization.

“A positive rating action is unlikely over the next 12-24 months. Factors that could lead to a negative rating action for BIL include deterioration in risk-adjusted capitalization at either BIL or Brit Insurance, deterioration in BIL’s reserves or the disposal of BIL by Brit Insurance. Factors that could lead to a negative rating action for Brit Insurance include deterioration in risk-adjusted capitalization.

Source: A.M. Best

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