LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Electrical Contractors’ Insurance Company Limited (ECIC) (United Kingdom). The outlook for both ratings remains stable.
The ratings reflect ECIC’s excellent risk-adjusted capitalisation, generally strong operating performance and specialist business profile. Risk-adjusted capitalisation remains at an excellent level, in spite of the operating loss reported in 2013 and the payment of an exceptional dividend of GBP 6 million in the second half of 2012.
Offsetting factors include volatility in performance, very strong growth and limited financial flexibility. Although the growth in business is in familiar markets or through well-established broker relationships, A.M. Best will monitor closely the profitability of this business and the effect of increased underwriting risk on ECIC’s risk-adjusted capitalisation.
Underpinned by an excellent knowledge of its core market, ECIC has a generally strong underwriting record, with a technical profit achieved in each of the eight years before 2013. However, in 2013, ECIC reported a pre-tax operating loss of GBP 3.5 million, in contrast to a profit of GBP 3.5 million in 2012, due in part to a small number of large claims and in part to substantial strengthening of asbestos loss reserves. In addition to the weak technical result, the operating loss was exacerbated by negative investment income, with unrealised investment losses outweighing income received and realised gains. Despite challenging market conditions in the United Kingdom, a good operating performance is anticipated for ECIC in 2014, supported by new lines of binding authority business and a positive, albeit modest, investment return.
ECIC has further reduced its reliance on third-party reinsurance, particularly quota share agreements. The company ceded approximately 40% of gross written premium in 2012 and 2011, but a review of its reinsurance needs led to the decision to reduce the quota share arrangement during 2013 to 25% on a two-year contract basis. An increased premium retention rate of around 75% is forecast for 2014 and 2015, thereby further diminishing ECIC’s exposure to reinsurance costs and credit risk.
ECIC has a good niche business profile providing insurance to electrical and mechanical building services contractors and other specialist construction professionals in the United Kingdom. The company benefits from its relationship with its parent, The Electrical Contractors’ Association (ECA), which provides access to a large membership base. Distribution is primarily via a network of brokers across the United Kingdom and has been enhanced by an electronic trading platform.
Following ECA’s disposal of its interest in a Lloyd’s syndicate, ECIC has reduced exposure to capital and liquidity risk from its parent.
Positive rating actions are unlikely in the near future for ECIC, whereas an unexpected weak operating performance or further deterioration in its risk-adjusted capitalisation could lead to negative rating pressure.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
This rating announcement has been issued by A.M. Best Europe – Rating Services Limited, which is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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