Best Upgrades EIO, Ansvar Ratings

In separate bulletins, A.M. Best Co. announced that it has upgraded the financial strength rating to “A” (Excellent) from “A-” (Excellent) and the issuer credit rating (ICR) to “a” from “a-” of the UK’s (EIO), and those of its subsidiary, Ansvar Insurance Company Limited, to “A-” (Excellent) from “B++” (Very Good) and the issuer credit rating to “a-” from “bbb+.” The outlook for all ratings is stable.

Ecclesiastical Insurance Office plc:
Best also assigned a rating of “bbb” to the £66.450 million ($130 million) of 8.625 percent non-cumulative irredeemable preference shares issued by EIO.

Best explained that the upgrade “reflects an improvement in EIO’s risk-adjusted capitalization,” which Best said it “believes is likely to be maintained throughout the underwriting cycle. The company’s consolidated risk-adjusted capitalization is expected to continue to improve in 2006 and 2007. Best indicated it foresees an increase in shareholders’ funds of about 10 percent in 2006 from £301.5 million ($589 million) in 2005, which it anticipates “will be sufficient to withstand potential earnings volatility owing to the company’s relatively high exposure to equities (26 percent of total assets as at year-end 2005).”

EIO turned in a “solid operating performance is anticipated in 2006, supported by good underwriting earnings,” Best continued. “The combined ratio is expected to remain below 90 percent, despite deteriorating premium rates in key business lines and significant investment in marketing and infrastructure.”

In A.M. Best’s opinion, “EIO’s excellent business profile in the niche church, charity, care home and private education sectors provides some protection against prospective price-related competition. In 2007, the company is expected to maintain a high client retention rate, supported by its specialist underwriting expertise.”

Ansvar Insurance Company Limited:
Best said Anvar’s upgrade reflects an improvement in the Company’s “stand-alone risk-adjusted capitalization,” which, Best said it “believes will be maintained throughout the underwriting cycle. The rating incorporates explicit support provided to Ansvar by its parent, Ecclesiastical Insurance Office plc (EIO).”

Best also indicated that it “believes Ansvar’s strong risk-adjusted capitalization will continue to improve in 2006 and 2007, supported by the retention of solid after-tax earnings. Shareholders’ funds are forecast to rise to about £15 million ($29 million) by year-end 2006 from £12 million ($23 million) in 2005. Additionally, Ansvar benefits from the support of EIO’s main reinsurance program and a 22.5 percent quota share agreement with EIO that covers all classes of business underwritten.

“A pre-tax profit of approximately £4 million ($7.5 million) is anticipated in 2006, supported by good underwriting performance. Although premium rates have been under increased pressure from larger competitors, Ansvar’s expertise in the niche not-for-profit sector is expected to support a combined ratio below 80 percent in 2006.”

The bulletin also noted that “Ansvar has an excellent business profile as a specialist insurer of churches, charities and other voluntary organizations. The company benefits from a strong relationship with a network of provincial brokers, which supports high client retention rates and provides the Ecclesiastical group with additional access to broker-sourced business in the United Kingdom.”