Best Revises Outlook; Affirms Ratings for West of England PI Club

A.M. Best Europe – Rating Services Limited has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and the issuer credit rating (ICR) of “a-” of Luxembourg-based The West of England Ship Owners Mutual Insurance Association (WOE or the Club).

The negative outlook “reflects WOE’s weak underwriting performance” as well as Best’s expectation that “risk-adjusted capitalization will remain excellent in 2011, but at a lower level than previously anticipated,” said the bulletin.

“The ratings also reflect the Club’s “legal right to make supplementary calls to its members, although a further supplementary call in the near-term, following the significant unbudgeted calls made in 2006 and 2008, would have an adverse impact on the Club’s profile. The Club has no plans to levy unbudgeted calls in 2011/12.”

Best also noted that the Club “achieved a modest increase in its members’ advance call in 2010. In spite of this, technical performance is likely to remain weak with a loss of over USD 40 million expected for the year ending February 2011 (2010: loss of $56 million). Although a further material increase in members’ advance calls is expected at the February 2011 renewal,” Best said it “believes the increase may not be a sufficient to support a breakeven underwriting result as at year-end February 2012.”

Best indicated that a “solid net investment yield is expected in 2011 (2010: 12 percent), supported by realized and unrealized gains. However, investment earnings in 2012 and further ahead are likely to remain volatile due to the Club’s relatively high exposure to equity investments and absolute return funds (almost 30 percent of total investments).

“WOE has a good business profile which benefits from its membership of the International Group of P&I Clubs (International Group). However, should it become necessary for the Club to make a further supplementary call to its members, it is likely that some would withdraw tonnage from the Club and WOE’s profile within the International Group would be weakened.

Source: A.M. Best