LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of United Kingdom Mutual War Risks Association Limited (UK War Risks or the Association) (United Kingdom). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect UK War Risks’ balance sheet strength, which AM Best assesses 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 capitalization that is at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Offsetting balance sheet strength factors include the Association’s small capital base and material dependence on reinsurance. UK War Risks cedes almost all of its underwriting risk to third-party reinsurers, retaining only a marginal deductible for certain risks. Counterparty credit risk is partly mitigated by the excellent credit quality and good diversification of its reinsurance panel.
Whilst UK War Risks’ overall earnings in recent years have benefited significantly from elevated premium levels, historical operating performance has been dependent on investment earnings due to the Association’s limited risk retention. Prospectively, operating performance is expected to remain sensitive to fluctuations in premium volume and volatility in investment results, with the latter being a result of the Association’s sizeable exposure to equity markets.
UK War Risks has an established profile as a specialist underwriter of war risk insurance, covering a range of commercial marine vessels worldwide. However, the Association is of limited size and its niche underwriting portfolio has a concentrated membership base. The loss of a single large member could lead to a sharp decline in underwriting earnings.
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