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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 issuer credit rating (ICR) and related debt ratings of Novae Group plc (United Kingdom) and Novae Holdings Limited (United Kingdom). Concurrently, A.M. Best has affirmed the ICR of "bbb" of Novae Group and the rating of "bbb-" on the GBP 70 million subordinated notes due 2017, issued by Novae Group. Additionally, A.M. Best has affirmed the ICR of "bbb-" of Novae Holdings and the ratings of "bbb-" on the USD 15 million senior unsecured floating rate notes due 2034, "bb+" on the USD 11 million subordinated floating rate notes due 2034 and "bbb-" on the USD 10 million senior unsecured floating rate notes due 2034, all issued by Novae Holdings.
At the same time, A.M. Best has affirmed the Best's Syndicate Rating of A (Excellent) and ICR of "a+" of Lloyd's Syndicate 2007 (United Kingdom), which is managed by Novae Syndicates Limited (NSL). The outlook for these ratings remains stable.
The negative outlook for the ratings of Novae Group and Novae Holdings reflects significant anticipated expansion of the group's reinsurance, motor and property accounts in 2010 and uncertainty over future performance related to this expansion. Consolidated gross written premiums are expected to increase by approximately 45% to GBP 600 million in 2010, of which the new accounts are expected to contribute approximately GBP 150 million. Consolidated risk-adjusted capitalisation is expected to be placed under pressure going forward, because the new business will be principally supported by the group's existing resources. Additionally, the financial flexibility of syndicate 2007 and Novae Insurance Company Limited (NICL), the group's insurance entities, will be reduced. (See today's related press release on NICL.)
The ratings of syndicate 2007 reflect the financial strength of the Lloyd's market, which underpins the security of all Lloyd's syndicates. Capacity is unchanged at GBP 360 million for the 2009 year of account, allowing the syndicate to capitalise on growth opportunities within the more profitable segments of the portfolio, while cutting back on business where rates are unfavourable. A.M. Best anticipates a rise in capacity for the 2010 year of account, allowing the syndicate to expand its reinsurance business, which will be written under the ‘Novae Re' brand. This new business unit will include property, motor, agricultural and engineering risks written predominantly in the international market, and is expected to contribute approximately GBP 90 million of premium income for the 2010 year of account or approximately 20% of the syndicate's overall business. A.M. Best believes that this represents a significant departure from the syndicate's specialist liability focus and that there is greater uncertainty over the syndicate's future performance as a result.
On an annually accounted basis, syndicate 2007 is expected to produce modest pre-tax profits in 2009 (2008: GBP 18 million). An underwriting loss is anticipated due to the high incidence of losses which affected the syndicate's aviation reinsurance and credit-related accounts during the first half of the year. The syndicate's strategy of investing in cash and high quality short duration fixed income investments is expected to result in lower investment earnings in 2009 due to the low interest rate environment. On a year of account basis, a positive return on capacity is anticipated for 2007 and 2008. Results for the 2008 year of account will reflect the deteriorating rating conditions across the syndicate's portfolio and the impact of hurricanes Ike and Gustav. Results for the 2007 year of account are expected to benefit from the strong rating environment for US catastrophe-exposed business following the 2005 hurricanes.
Syndicate 2007 benefits from its strong profile in the London market for specialty lines, and in 2008 led approximately 70% of its specialty and liability accounts. Gross written premium is expected to increase by approximately 20% (including the impact of foreign exchange movements) to GBP 375 million in 2009. Underlying growth is expected to arise from the marine, property and financial institutions accounts, following the large loss events of 2008, although tempered by the weak market conditions for its liability classes of business. Going forward, syndicate 2007's expansion of its reinsurance business will further diversify the syndicate's portfolio and hence raise its business profile.
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.