AM Best Affirms Credit Ratings of Universal Insurance Company (Guernsey) Limited
April 23 2024 - 12:58PM
Business Wire
AM Best has affirmed the Financial Strength Rating of B
(Fair) and the Long-Term Issuer Credit Rating of “bb” (Fair) of
Universal Insurance Company (Guernsey) Limited (UIC) (Guernsey).
The outlook of these Credit Ratings (ratings) is negative.
The ratings reflect UIC’s balance sheet strength, which AM Best
assesses as adequate, as well as its strong operating performance,
very limited business profile and marginal enterprise risk
management (ERM).
The negative outlooks reflect pressures on UIC’s
creditworthiness driven by the uncertainty in its strategic
direction as its ultimate parent, Universal Holdings (Guernsey)
Limited (UHL), restructures its operations, which led to elevated
financial leverage for the group at the end of 2023.
UIC’s balance sheet strength is underpinned by its risk-adjusted
capitalisation, as measured by Best’s Capital Adequacy Ratio
(BCAR), which has returned to the strongest level at the fiscal
year-end 30 June 2023. 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 strengthening its
capital base, which significantly reduced following the payment of
a GBP 8 million extraordinary dividend in July 2022 to UHL. A
partially offsetting factor is UIC’s very small capital base of GBP
3.2 million at fiscal year-end 30 June 2023, which heightens the
sensitivity of its balance sheet strength to any shocks. UIC’s
balance sheet strength assessment also considers the negative
impact of its holding company, UHL, which has elevated financial
leverage.
Since its creation in 2014, UIC has achieved strong operating
profitability. The company has reported a five-year (2019-2023)
weighted average return-on-equity ratio of 32.4%. Earnings are
derived primarily from excellent underwriting profitability,
reflected in a five-year weighted average combined ratio of 21.3%,
whilst the conservative and highly liquid investment portfolio
produces modest albeit stable returns.
UIC’s underwriting book of business is highly concentrated, as
it writes only ancillary motor business in a single territory. In
addition, AM Best views UIC’s business model to be vulnerable to
potential changes in the U.K. retail motor market.
AM Best considers UIC’s ERM framework to be evolving. The
marginal ERM assessment factors in the elevated risk profile
stemming from UIC’s business model, which encompasses significant
concentration risk.
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 Performance Assessments, 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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Marving Lopez Financial Analyst +44 20 7397
4389 marving.lopez@ambest.com
Christopher Sharkey Associate Director, Public
Relations +1 908 882 2310
christopher.sharkey@ambest.com
Ghislain Le Cam, CFA, FRM Senior Director,
Analytics +44 20 7397 0268 ghislain.lecam@ambest.com
Al Slavin Senior Public Relations Specialist +1
908 882 2318 al.slavin@ambest.com