LONDON--(BUSINESS WIRE)--AM 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 AM 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 balance sheet strength 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. Counterparty credit risk is somewhat mitigated by the diversity and excellent credit quality of its reinsurers.
UK War Risks has an adequate, albeit volatile, earnings record, with a five-year average return on equity of 2.6% (February 2015- February 2019). Operating results are dependent on investment earnings, which have been volatile due to the Club’s significant exposure to equity markets. Technical results largely reflect the Club’s ability to charge sufficient premium to cover its operating expenses, as almost all claims are covered by reinsurance. Consequently, the non-renewal of a large member could lead to a sharp decline in technical earnings, due to a fall in premium income without an offsetting reduction in management expenses.
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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