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 its 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 for certain risks. Counterparty credit risk is mitigated somewhat by the diversity and excellent credit quality of the Club’s reinsurers.
Although profitable over the longer term, UK War Risks’ operating performance has been subject to volatility. Historically, operating results have been dependent on investment earnings, which have been volatile due to the Club’s significant exposure to equity markets. An excellent result of USD 7 million is expected for the year-ending February 2020, as a result of a material increase in premiums and a robust investment performance during the year.
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 small size, niche underwriting portfolio and concentrated membership base. The loss of a single large member could lead to a sharp decline in technical earnings.
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