A.M. Best Affirms Ratings of Electrical Contractors’ Insurance Company Limited

LONDON--(BUSINESS WIRE)-- A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Electrical Contractors’Insurance Company Limited(ECIC) (United Kingdom).The outlook for both ratings remains stable.

ECIC’s risk-adjusted capitalisation is likely to remain excellent in 2012 and into 2013, in spite of a payment to be made in the second half of 2012 of an exceptional dividend of GBP 6 million. This payment is to help ECIC’s parent, the trade organisation The Electrical Contractors’ Association, meet cash calls in relation to a loss-making Lloyd’s syndicate, the interest in which has now been sold. Risk-adjusted capitalisation is otherwise supported by retained earnings and a move to a more conservative investment portfolio.

An offsetting rating factor is ECIC’s high reliance on third-party reinsurance, particularly quota share agreements, with the company having ceded approximately 40% of gross premiums written in 2011 (2010: 50%). However, this proportion is expected to reduce further in 2012, with subsequent reductions likely to take it to nearly 25% in 2014, thereby diminishing ECIC’s exposure to increased reinsurance rates and credit risk.

Despite challenging market conditions in the United Kingdom, a good underwriting performance is anticipated for ECIC in 2012, with a combined ratio between 40% and 45%. ECIC has a strong underwriting record, which is underpinned by an excellent knowledge of its core market. In 2011, the company produced an exceptional combined ratio of 15%, due to a negative loss ratio since the decrease in net claims reserves was marginally greater than the amount of net claims paid. ECIC’s investment performance is less volatile than in the past after reallocations of a proportion of investments from equities to high quality fixed income securities during 2010 and 2011 and improved oversight of investment managers’ performance.

ECIC has a good niche business profile providing insurance to electrical and mechanical building services contractors and other specialist construction professionals in the United Kingdom. The company benefits from its relationship with its parent, which provides access to a large membership base. Distribution is primarily via a network of brokers across the United Kingdom and has been enhanced by an electronic trading platform.

Positive rating actions are unlikely in the near future for ECIC, whereas unexpected weak operating performance or a deterioration in its risk-adjusted capitalisation could lead to negative pressure.

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: “Risk Management and the Rating Process for Insurance Companies”; “Understanding Universal BCAR”; “Understanding BCAR for Property/Casualty Insurers”; and “Rating Members of Insurance Groups”. Best’s Credit Rating Methodology can be found at www.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.Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Company, Inc.
David Drummond
Senior Financial Analyst
+(44) 20 7397 0327
[email protected]
or
Catherine Thomas
Director, Analytics
+(44) 20 7397 0281
[email protected]
or
Rachelle Morrow
Senior Manager, Public Relations
+(1) 908 439 2200, ext. 5378
[email protected]
or
Jim Peavy
Assistant Vice President, Public Relations
+(1) 908 439 2200, ext. 5644
[email protected]

Source: A.M. Best Company, Inc.