CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - OCTOBER 01, 2009 12:00 AM (EDT)
A.M. Best Co. has revised the outlook to negative from stable for the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of Novae Insurance Company Limited (NICL) (United Kingdom). At the same time, A.M. Best has affirmed these ratings. (See today's related press release on NICL's ultimate parent company, Novae Group plc.)
The change in outlook reflects the uncertainty associated with NICL's anticipated expansion in 2010, which represents a significant deviation from its specialist profile as a liability focused insurer. Gross written premiums are expected to increase by approximately 85% to GBP 120 million, driven by the growth of NICL's property and motor business, which is expected to represent approximately 50% of its ongoing business. Since it was established in 2006, NICL's profitability has been dependent on investment earnings owing to high start-up costs, the impact of intense competition within the UK regional markets and the negative effect of the economic downturn on claims experience from its predominantly specialist liability portfolio.
A.M. Best believes that risk-adjusted capitalisation will inevitably be eroded by the planned rise in underwriting exposure because NICL's growth plans will be undertaken using the existing resources of the company. Whilst risk-adjusted capitalisation in 2009 does allow a margin for growth because the volume of business written within the company's core liability account has been consistently below expectations, NICL's financial flexibility will be significantly reduced in 2010.
A.M. Best expects NICL to produce a positive pre-tax profit in 2009, comparable to the GBP 3 million achieved in 2008. However, performance is likely to remain dependent on earnings from the company's conservative investment portfolio. Underwriting results have been weak since the company was established, principally due to NICL's large expense base relative to net written premiums. Some improvement in the loss ratio is anticipated in 2009 (2008: 68.1%), following NICL's decision to contract its regional professional indemnity account during 2008. This business was negatively affected by unfavourable prior year claims development and a rise in claims frequency due to the declining economic environment.
NICL benefits from the good profile of the Novae group in the United Kingdom. Underwriting has been focused on the liability classes of business (expected to account for over 70% of gross written premiums in 2009), with a smaller and expanding book of non-correlated motor, property and bloodstock risks. Gross written premium is expected to remain stable in 2009 (2008: GBP 63.9 million) as growth deriving largely from the property and bloodstock accounts is offset by the overall contraction of the liability classes of business.
For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit Best's Ratings & Analysis.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at Best's Credit Rating Methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.