LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of The United Kingdom Mutual War Risks Association Ltd. (UK War Risks or the Club) (United Kingdom). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect UK War Risks’ balance sheet strength, which A.M. Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
UK War Risks’ balance sheet strength is underpinned by risk-adjusted capitalisation that is at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Offsetting rating factors include the Club’s small capital base and its material dependence on reinsurance. UK War Risks cedes almost all of its underwriting risk to third-party reinsurers, retaining only a small deductible on one part of its reinsurance programme. The Club benefits from an excellent and diversified reinsurance panel, which somewhat offsets its high exposure to counterparty credit risk.
UK War Risks has an adequate, albeit volatile, earnings track record, as demonstrated by a five-year average return on equity of 4% (2014-2018). Operating results are expected to remain dependent on investment performance, which has exhibited volatility due to the Club’s significant exposure to equity markets. Although UK War Risks benefits from an excellent loss record, it is exposed to the potentially disruptive upward movement in the cost of reinsurance.
The Club has an established business profile as a specialist underwriter of war risk insurance for ships. However, the Club’s business profile is limited due to its relatively small size, concentrated membership base and focus on a small underwriting niche.
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