AM Best Affirms Credits Ratings of Folgate Insurance Company Limited

LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bb+” (Fair) of Folgate Insurance Company Limited (Folgate) (United Kingdom). The outlook of the FSR is stable, while the outlook of the Long-Term ICR is negative.

These Credit Ratings (ratings) reflect Folgate’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, very limited business profile and appropriate enterprise risk management (ERM).

The negative outlook on the Long-Term ICR reflects pressure on the company's balance sheet strength assessment stemming from deteriorating risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), and weakening operating performance.

Folgate’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by BCAR, which is expected to remain at least at the strong level. Risk-adjusted capitalisation deteriorated in 2020 following significant operating losses, having been marginally at the very strong level at year-end 2019, and is expected to recover in 2021. The balance sheet strength assessment considers Folgate’s small capital base, which enhances the sensitivity of its risk-adjusted capitalisation to any shocks. The impact of the company’s ultimate parent, Anglo London Limited (ALL), on its balance sheet strength assessment has been revised to neutral from negative, reflecting ALL’s improving consolidated risk-adjusted capitalisation, as measured by BCAR, and decreasing financial leverage.

AM Best expects Folgate’s operating performance to remain at the adequate level over the cycle, supported by marginal underwriting profits, based on the track record of business sourced via an affiliated managing general agent, Anglo Pacific Consultants (London) Limited (APC), and modest investment income, which is reflective of a conservative asset allocation following the recent de-risking of the company’s portfolio. Folgate reported a return-on-equity ratio of -14% in 2020, due to the impact of significant one-off technical losses and negative investment earnings resulting from the divestment from equity investments in the context of market volatility associated with the COVID-19 pandemic. Folgate is expected to report a marginal operating profit in 2021.

Folgate’s underwriting book of business is highly concentrated by product and geography. 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.

Folgate’s risk management framework is largely based on regulatory requirements in the United Kingdom. Whilst the company’s risk management capabilities are considered broadly commensurate to its risk profile, AM Best will continue to monitor whether underwriting losses in recent years are evidence of potential weaknesses in ERM.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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