Best’s News & Research Service - December 08, 2022 11:10 AM (EST)
AM Best Revises Issuer Credit Rating Outlook to Stable for Folgate Insurance Company Limited
- December 08, 2022 11:10 AM (EST)
London //BestWire// - AM Best has revised the outlook to stable from negative for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb+” (Fair) of Folgate Insurance Company Limited (Folgate) (United Kingdom). The outlook of the FSR is stable.
These Credit Ratings (ratings) reflect Folgate’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, very limited business profile and appropriate enterprise risk management (ERM).
The revision of the Long-Term ICR outlook to stable from negative reflects the recovery of Folgate’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), to the very strong level at year-end 2021, as a result of improved operating performance, from the strong level at year-end 2020. Going forward, actions taken by the company to reduce capital requirements are expected to support at least very strong level of risk-adjusted capitalisation.
The balance sheet strength assessment considers Folgate’s small capital base, which enhances the sensitivity of its risk-adjusted capitalisation to any shocks, and the company’s material dependence on reinsurance. The impact of the company’s ultimate parent, Anglo London Limited (ALL), on Folgate’s balance sheet strength assessment is neutral. ALL’s consolidated risk-adjusted capitalisation, as measured by BCAR, improved to the very strong level in 2021. Concurrently, ALL’s consolidated financial leverage decreased significantly in 2021.
Folgate reported a modest operating profit in 2021, equivalent to a return-on-equity ratio (ROE) of approximately 5% (2020: -14.3%). The improvement in 2021 was driven by technical profitability, with a combined ratio of 91.6% in 2021, following underwriting losses in 2019 and 2020. Folgate reported further underwriting profits in the first nine months of 2022, and AM Best expects adequate technical profits over the cycle based on the track record of business sourced via an affiliated managing general agent, Anglo Pacific Consultants (London) Limited (APC).
Folgate’s underwriting book of business is highly concentrated by product and geography. In addition, AM Best views Folgate’s position in the competitive U.K. market as vulnerable and highly dependent on third parties. This is partly mitigated by APC’s underwriting expertise and existing broker relationships.
Folgate’s risk management framework is largely based on regulatory requirements in the United Kingdom. Whilst the company’s risk management capabilities are considered broadly commensurate to its risk profile, AM Best will continue to monitor whether underwriting losses in recent years are evidence of potential weaknesses in ERM.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.