Best Downgrades Brit Insurance Ltd. Ratings; Keeps on Review/Negative

June 19, 2012

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

Best also commented that the ICR of “bbb” of Netherlands-based Brit Insurance Holdings B.V. , the ultimate parent of the Brit Insurance group of companies, remains under review with negative implications.

In addition Best noted that the debt rating of “bbb-” on the “£135 million [$210 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, remains under review with negative implications.”

Best issued the statement following the announcement on June 18 that BIL will be acquired by RiverStone Holdings Limited, an indirect subsidiary of Fairfax Financial Holdings Limited, subject to regulatory approval. The transaction is expected to complete in the fourth quarter of 2012.

“The downgrade of BIL’s ratings reflects increased uncertainty as to whether the company’s risk-adjusted capitalization will be maintained at the current level and further deterioration in its business profile,” Best explained.

Best also noted that as of the end of 2011, “BIL’s risk-adjusted capitalization was strong. Subsequent to year-end 2011, risk- adjusted capitalization has not deteriorated. However, the announcement on June 18, 2012 of the sale of BIL to RiverStone Holdings Limited increases uncertainty as to whether prospective risk-adjusted capitalization will be maintained at the current level.

“On April 3, 2012, Brit Insurance announced its intention to transfer the renewal rights, operations and assets of its UK regional business to QBE Insurance (Europe) Limited, a transaction which significantly reduced BIL’s business profile.”

Best said it “believes BIL’s business profile will be further diminished following Brit Insurance’s announcement of its intention to sell BIL to RiverStone Holdings Limited.”

BIL’s ratings “will remain under review with negative implications pending further discussions with management and completion of its sale to RiverStone Holdings Limited. Prior to the conclusion of the transaction,” Best said it would “closely monitor the risk-adjusted capitalization of BIL and react as necessary.

“The rating of Brit Insurance remains under review while A.M. Best continues to evaluate the impact of any possible capital restructuring on the group’s consolidated risk-adjusted capitalization associated with the potential sale of BIL.

“Positive rating actions are unlikely over the next 12-24 months. Factors that could lead to negative rating actions for BIL include deterioration in risk-adjusted capitalization or deterioration in its reserves. Factors that could lead to negative rating actions for Brit Insurance include deterioration in risk-adjusted capitalization.”

Source: A.M. Best

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