Standard & Poor's Affirms A- rating of BRIT Insurance Limited (13/11/2000)

Standard & Poor's has today affirmed its A- rating of BRIT Insurance Limited. The outlook is stable.
November 13,2000


LONDON (Standard & Poor's CreditWire) Nov. 13, 2000-- Standard & Poor's today affirmed its A- counterparty credit and insurer financial strength ratings on BRIT Insurance Ltd. (BRIT). The outlook is stable.
The ratings are based predominantly on the company's very strong current and prospective capital adequacy, underpinned by a multiyear stop-loss contract with CNA Reinsurance Co. Ltd. (CNA Re; A/Negative/--). In addition, the rating reflects an able management team with strong credentials for conducting certain specialized lines of financial risk business. These factors are offset by BRIT's moderate, but improving business position and lack of earnings history.
The company is a wholly owned subsidiary of BRIT Insurance Holdings PLC (BRIT Holdings). Since 1995, BRIT has written, and will continue to write, modest amounts of catastrophe reinsurance business. Since the beginning of 1999, the company has diversified into mortgage indemnity business and other financial lines, which are expected to account for an increasing proportion of in-force risks.
Major rating factors:
- The company has very strong capitalization, current and prospective, although the capital base is small in absolute terms at £56 million ($84 million) at year-end 1999. Capitalization is underpinned by the three-year stop-loss reinsurance protection provided by CNA Re that limits BRIT's loss ratio to 120%.
- BRIT's senior management team has strong credentials for conducting certain specialized lines of financial risk business, particularly mortgage indemnity business. They are backed up by experienced nonexecutive directors, who are integrated in the risk management process.
- Moderate, but improving business position. BRIT benefits from a historic niche in catastrophe business written in the London market. In addition, Standard & Poor's believes that the company, with its major focus on financial risks, is well placed to satisfy the needs of mortgage lenders in the U.K.
- Despite a high level of claims associated with 1999 catastrophes, BRIT's operating performance since inception remains good. The combined ratio and ROR have averaged 108% and 23%, respectively, in the five years to 1999. BRIT mortgage indemnity business will also benefit from the continuing benign conditions in the U.K. property market.
- Very disciplined approach to writing catastrophe business, with conservative bases for calculating probable maximum loss. This discipline is backed by good corporate governance oversight and close supervision from the Financial Services Authority.
OUTLOOK: STABLE
- It is management's stated intention to maintain BRIT's risk-based capital at or above a 165% capital adequacy ratio, as determined through Standard & Poor's capital adequacy model. This level is consistent with risk-based capital in the high 'AA' range.
- Modest growth in financial risks business, with gross premiums of £9 million in 2000 rising to £20 million by 2002.
- Gross premiums on catastrophe business are expected to reach £30 million for 2000, but to grow only modestly in 2001 and 2002 to about £32 million due to careful control of aggregate exposures. Strong growth at the net level, however, is expected due to higher retentions.
- Continued good profitability for catastrophe business over the course of the underwriting cycle. The combined ratio in the longer term is expected to be 85%-95%, with ROR of about 20%. Standard & Poor's said.
 
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