A.M. Best Europe - Rating Services Limited has downgraded the financial strength rating (FSR) to B++ (Good) from A- (Excellent) and the issuer credit rating (ICR) to "bbb+" from "a-" of Brit Insurance Limited (BIL) (United Kingdom).

The ratings remain under review with negative implications.

A.M. Best has also commented that the ICR of "bbb" of Brit Insurance Holdings B.V. (Brit Insurance) (Netherlands), the ultimate parent of the Brit Insurance group of companies, remains under review with negative implications. Additionally, A.M. Best has commented that the debt rating of "bbb-" on the GBP 135 million fixed rate subordinated notes, originally issued and guaranteed by the intermediate holding company of BIL, Brit Insurance Holdings Ltd (United Kingdom), and now an obligation of Brit Insurance, remains under review with negative implications.

The rating actions follow Brit Insurance's announcement on June 18, that BIL will be acquired by RiverStone Holdings Limited, an indirect subsidiary of Fairfax Financial Holdings Limited, subject to regulatory approval. The transaction is expected to complete in the fourth quarter of 2012. The downgrade of BIL's ratings reflects increased uncertainty as to whether the company's risk-adjusted capitalisation will be maintained at the current level and further deterioration in its business profile.

As at the end of 2011, BIL's risk-adjusted capitalisation was strong. Subsequent to year-end 2011, risk- adjusted capitalisation has not deteriorated. However, the announcement on June 18, of the sale of BIL to RiverStone Holdings Limited increases uncertainty as to whether prospective risk-adjusted capitalisation will be maintained at the current level.

On April 3, Brit Insurance announced its intention to transfer the renewal rights, operations and assets of its UK regional business to QBE Insurance (Europe) Limited, a transaction which significantly reduced BIL's business profile. A.M. Best believes BIL's business profile will be further diminished following Brit Insurance's announcement of its intention to sell BIL to RiverStone Holdings Limited.

The ratings of BIL will remain under review with negative implications pending further discussions with management and completion of its sale to RiverStone Holdings Limited. Prior to the conclusion of the transaction, A.M. Best will closely monitor the risk-adjusted capitalisation of BIL and react as necessary.

The rating of Brit Insurance remains under review while A.M. Best continues to evaluate the impact of any possible capital restructuring on the group's consolidated risk-adjusted capitalisation associated with the potential sale of BIL.

Positive rating actions are unlikely over the next 12-24 months. Factors that could lead to negative rating actions for BIL include deterioration in risk-adjusted capitalisation or deterioration in its reserves. Factors that could lead to negative rating actions for Brit Insurance include deterioration in risk-adjusted capitalisation.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: "Understanding BCAR for Property/Casualty Insurers"; "Catastrophe Analysis in A.M. Best Ratings"; "Understanding Universal BCAR"; "Risk Management and the Rating Process for Insurance Companies"; "Rating Members of Insurance Groups"; and "Equity Credit for Hybrid Securities". Best's Credit Rating Methodology can be found at ambest.com/ratings/methodology.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.

A.M. Best Europe - Rating Services Limited is a subsidiary of A.M. Best Company. A.M. Best Company is an insurance rating and information source.

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