A.M. Best Affirms Ratings of Electrical Contractors’ Insurance Company Limited [Manufacturing Close – Up]

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.

The ratings reflect ECIC's excellent risk-adjusted capitalisation, strong operating performance and specialist business profile. Risk-adjusted capitalisation is expected to remain at a strong level in 2013 and into 2014, in spite of the payment of an exceptional dividend of GBP 6 million in the second half of 2012. This dividend was paid 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.

ECIC has further reduced its reliance on third-party reinsurance, particularly quota share agreements. The company ceded approximately 40 percent of gross written premium in 2012 and 2011, but a review of its reinsurance needs led to the decision to reduce the quota share arrangement during 2013 to 25 percent on a two-year contract basis. An increased premium retention rate of around 70 percent is forecast for 2013 and 2014, thereby diminishing ECIC's exposure to increased reinsurance rates and credit risk.

ECIC has a solid underwriting record, which is underpinned by an excellent knowledge of its core market. In 2012, the company produced a strong underwriting result, assisted by releases of prior years' reserves. ECIC's operating performance for 2012 was supported by an excellent investment performance, enhanced by realised investment gains following the disposal of all equity based investments during the year. Despite challenging market conditions in the United Kingdom, a good operating performance is anticipated for ECIC in 2013, albeit with lower investment income given the continuing low interest rate environment.

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 an unexpected weak operating performance or a material deterioration in its risk-adjusted capitalisation could lead to negative rating pressure.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides an explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process.

More Information:

www.ambest.com

www.ambest.com/ratings/methodology

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