Rating agency and stock market give Brit deal thumbs up

When the deal was first mooted Fitch Ratings placed Brit on rating watch negative in late September. After it was revealed that the Brit board had agreed to accept the offer Fitch swiftly affirmed Brit Insurance Limited's (BIL) financial strength (IFS) rating at 'A', and Brit Insurance Holdings (BIHNV) Long-term Issuer Default Rating (IDR) at 'BBB+' and its subordinated notes at 'BB+. The ratings have been removed from the negative watch and the outlook is stable. The Netherlands based insurer that operates mainly out of its UK and Lloyd’s of London base saw its share price soar to a 12 month high when the long-awaited deal was announced. Fitch said that, based on information provided, it agency anticipates that the financial profile of Brit, post-acquisition, will be maintained within the insurer's existing target range of mid to high 'A'.hide“Fitch will monitor the post-acquisition profile of Brit Insurance, and the agency expects that leverage and capitalisation will be maintained at levels at least commensurate with the current ratings. Fitch notes that the level of risk assumed within the investment portfolio will be raised modestly to increase returns and the agency will watch this closely. Fitch will also monitor whether the change in ownership will result in higher required regulatory capital,” said the agency. “Regarding strategy, Fitch anticipates that Brit Insurance's existing management team will retain the day-to-day running of the business and maintain underwriting discipline, with future premium growth being reflective of market conditions. The agency will also continue to assess the effects of the transaction on Brit Insurance's ability to retain both good insurance business and talented staff,” it added. Brit recently announced gross written premium down 8.5% to £1.2bn for the first nine months of this year compared with £1.3bn for the same period last year, a decrease of 9.0% at constant exchange rates. It said that lower premium volumes reflected ‘continued active portfolio management and a disciplined approach to the renewals where premium rates are under excessive pressure.’ Brit said that it experienced average premium rate increase on renewed business for the period of 1.1% compared with an increase of 4.8% at the end of September last year. It added that overall development of prior year claims reserves continues to be positive and that the investment return for the period of £101.8m represented a non-annualised return of 2.9% compared with 3.6% at the same point last year. Dane Douetil, Chief Executive Officer of Brit Insurance Holdings, said: “The third quarter saw broadly a continuation of the trends experienced in the first half of the year. Underwriting remained competitive in most classes whilst the group again experienced better than expected investment returns. Our approach has also been consistent with previous quarters, with our underwriters strongly defending business that can be renewed at adequate prices whilst being prepared to walk away from inadequately rated business.” Mr Douetil added: “Cost control has been an important priority as we shrink the top line in response to a weakening market. We will go into 2011 well equipped to deal with what we expect to remain a competitive marketplace.” Brit said that the insurance market is forecast to remain ‘competitive’ for the remainder of 2010 and into 2011 with sufficient capital in most lines of business. “In time, however, the impact of low interest rates and, for the UK market, high industry accident year combined ratios should lead to a period of improving pricing,” it added. Brit said that the UK market remains ‘in the toughest position’ of its business units with ‘little evidence’ to suggest that current modest price increases will materially accelerate in the short term. The company added that the outlook for its Global Markets’s key business lines is ‘finely poised’. “In this context a focus on portfolio management and risk selection are the key to outperformance. The highest risk adjusted returns exist within reinsurance where the group continues to operate close to its maximum catastrophe risk appetite,” said Brit.

Rating agency and stock market give Brit deal thumbs up

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