LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Universal Insurance Company (Guernsey) Limited (UIC) (Guernsey). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect UIC’s balance sheet strength, which AM Best categorises as strong, as well as its strong operating performance, very limited business profile and marginal enterprise risk management (ERM).
UIC’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and considers the company’s very conservative investment portfolio. AM Best expects UIC’s BCAR scores to remain comfortably in excess of the minimum required for the strongest assessment, with good internal capital generation continuing to support the company’s growth. An offsetting factor in the balance sheet strength assessment is the company’s small capital base, which heightens the potential volatility in risk-adjusted capitalisation.
Since its creation in 2014, UIC has reported strong operating performance, evidenced by a five-year (2016-2020) weighted average return on equity of 46.4%. Earnings are derived primarily from the company’s excellent underwriting profitability, as seen in its five-year weighted average combined ratio of 21.8%, whilst the very conservative and highly liquid investment portfolio produces marginal but stable returns.
UIC provides ancillary motor policies, primarily distributed by brokers in the United Kingdom. The company’s profile is highly concentrated as it operates in a single line of business in a single territory, which makes its business model vulnerable to changes in the U.K. motor market. Whilst UIC aims to grow its book of excess motor policies and create new products for the motor insurance market, its profile is expected to remain very limited.
UIC’s ERM framework is considered to be evolving, and AM Best expects the company to continue to develop it. The marginal ERM assessment factors in the elevated risk profile stemming from UIC’s business model, which encompasses significant concentration risk.
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