LONDON--(BUSINESS WIRE)--AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb+” of Folgate Insurance Company Limited (Folgate) (United Kingdom). The outlook of the FSR is stable.
The Credit Ratings (ratings) reflect Folgate’s balance sheet strength, which AM Best categorises as adequate, as well as its adequate operating performance, very limited business profile and appropriate enterprise risk management.
The revision of the Long-Term ICR outlook to negative reflects pressures on the company's balance sheet strength assessment stemming from deteriorating risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR).
Folgate was acquired by its parent, Anglo London Limited (ALL), in 2014, and re-commenced active underwriting in September 2015, writing quota-share reinsurance for business sourced by an affiliated company, Anglo Pacific Consultants (London) Limited (APC). APC is a managing general agent specialising in commercial lines insurance for small and medium-sized businesses. In 2018, Folgate received an insurance licence, and as part of its new business model, started writing direct business on a co-insurance basis in order to support its capacity. Folgate expects gross written premiums of approximately GBP 11.1 million in 2020.
Folgate’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by BCAR, which was marginally at the very strong level at year-end 2019. Risk-adjusted capitalisation is expected to deteriorate at year-end 2020, driven by poor results, and remains exposed to potential volatility due to the company’s small capital base. The impact from ALL on balance sheet strength is assessed as negative, due to its inadequate consolidated BCAR scores, financial leverage and limited financial flexibility.
AM Best expects Folgate to report a loss for 2020, driven by poor investment and technical profitability. However, the company’s operating performance is expected to be adequate over the cycle, supported by underwriting profits stemming from the business originated by APC, and modest investment income following portfolio de-risking in 2020.
Folgate’s underwriting book of business is highly concentrated by product and geography and is dominated by U.K. commercial lines insurance. In addition, AM Best views Folgate’s position in the competitive U.K. market as vulnerable and highly dependent on third parties. This is partly mitigated by APC’s underwriting expertise and existing broker relationships.
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