Best’s News & Research Service - December 01, 2023 09:42 AM (EST)
AM Best Affirms Credit Ratings of Folgate Insurance Company Limited
- December 01, 2023 09:42 AM (EST)
London //BestWire// - AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) of Folgate Insurance Company Limited (Folgate) (United Kingdom). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Folgate’s balance sheet strength, which AM Best assesses as adequate, as well as the company’s adequate operating performance, very limited business profile and appropriate enterprise risk management (ERM).
The balance sheet strength assessment considers Folgate’s relatively small capital base, which increases the sensitivity of its risk-adjusted capitalisation to shocks. Folgate’s BCAR scores have been volatile in recent years, though actions taken by management in 2022 and 2023 to de-risk the company’s balance sheet are expected to support at least a very strong level of risk-adjusted capitalisation, prospectively. The impact of the holding company, Anglo London Holdco Ltd (ALL), is considered neutral; ALL’s consolidated risk-adjusted capitalisation, as measured by BCAR, improved to the strongest level in 2022. Moreover, ALL’s consolidated financial leverage decreased to nil in the first half of 2023, from a high of more than 60% in 2018.
Folgate reported a five-year (2018-2022) weighted average return-on-equity ratio (ROE) of -3.7%. ROEs were volatile over this period, with losses in the more recent years significantly impacted by unrealised losses in the company’s fixed income portfolio. Folgate is managed by its sister company—Anglo Pacific Consultants (London) Limited (APC) —via a service level agreement. Folgate and APC are the sole operating entities of the Anglo London group. Folgate cannot operate in isolation and its reported underwriting profitability is highly impacted by commission and fee agreements with APC. Consideration is therefore given to the overall profitability of the Anglo London group, which recorded a five-year weighted average ROE of 18.1%.
Folgate’s underwriting book of business is highly concentrated by product and geography. In addition, AM Best views Folgate’s position in the competitive UK market as vulnerable and highly dependent on third parties. This is partly mitigated by APC’s underwriting expertise and long-standing 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 and reserve deficiencies 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.