A.M. Best Affirms Ratings of London General Insurance Company Ltd and London General Life Company [Professional Services Close – Up]

A.M. Best Europe - Rating Services Limited said it has affirmed the financial strength rating of A- (Excellent) and issuer credit ratings of "a-" of London General Insurance Company Limited (LGI) and London General Life Company Limited (LGL) (both domiciled in the United Kingdom).

The outlook for all ratings remains stable.

In a release, the insurance rating company said LGI and LGL are expected to maintain excellent risk-adjusted capitalisation in 2012, supported by a modest increase in shareholders' funds for both companies. LGI's risk-adjusted capitalisation continues to be supported by letters of credit and trust arrangements, which the company holds as collateral to mitigate reinsurer default risk.

LGI is expected to maintain strong technical performance in 2012, despite the ongoing impact of the economic downturn on creditor business and adverse claims experience for mobile phone business in Continental Europe, A.M. Best said.

The company reported an excellent underwriting profit of approximately GBP 10.0 million in 2011, albeit materially lower than the GBP 19.5 million achieved in 2010. The performance was affected by a sharp decline in earned premium due to the effect of challenging economic conditions on demand for creditor business. The result benefited from reserve releases due to better than initially anticipated claims experience for recession-affected lines such as creditor business as well as some warranty lines.

LGL's technical profit in 2012 is expected to be materially lower than the GBP 2.0 million achieved in 2011. The company's strong technical performance in 2011 was supported by profitable multi- year contracts written in prior years, and also by a reduction in its long-term business provision of approximately GBP 20.8 million (2010: GBP 9.3 million).

LGI and LGL maintain a good specialist profile in the United Kingdom, Ireland and Continental Europe. The companies share a client base, and their combined underwriting portfolio includes extended warranty, accidental damage and creditor insurance. LGI's net premium income is likely to increase in 2012 due to a number of new large warranty contracts secured in late 2010 and early 2011 as well as organic growth of existing business. A decline in the net premium written by LGL in recent years, due to weak economic conditions and consequent reduction in demand for consumer loans, has weakened the company's business profile. Any increase in LGL's premium volume is dependent on an increase in lending activities in the UK and European markets.

A.M. Best believes LGI and LGL are well positioned at their current rating level. Factors that could lead to negative rating actions for both companies include a significant decline in risk- adjusted capitalisation and weaker than expected operating performance. In addition, further deterioration in LGL's business profile would likely lead to a review of its ratings.

More information:

www.ambest.com

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