A.M. Best Downgrades Ratings of Brit Insurance Limited and Places Under Review With Negative Implications [Professional Services Close – Up]

A.M. Best Europe - Rating Services Limited has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and the issuer credit rating (ICR) to "a-" from "a" of Brit Insurance Limited (BIL) (United Kingdom) and placed the ratings under review with negative implications.

Concurrently, A.M. Best has placed the ICR of "bbb" of Brit Insurance Holdings B.V. (Brit Insurance) (Netherlands), the ultimate parent of the Brit Insurance group of companies, under review with negative implications. Additionally, A.M. Best has placed under review with negative implications the debt ratings 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.

The rating actions for BIL follow Brit Insurance's announcement that it has entered into a definitive agreement to transfer the renewal rights, operations and assets of its UK regional business to QBE Insurance (Europe) Limited. The transaction is expected to complete on April 13, and will substantially diminish BIL's business profile. There will be no transfer of historical business.

Since the completion of a strategic review by Brit Insurance of its underwriting platforms in December 2011, BIL's underwriting portfolio has comprised solely of the group's UK regional business. BIL is not expected to write new business in the foreseeable future.

In addition, Brit Insurance has announced that it will undertake a further strategic review of options for BIL's future. The ratings of BIL will remain under review with negative implications while A.M. Best assesses management's future plans for the company and the impact that any possible group or capital restructuring may have on its financial strength. A.M. Best expects the group's strategic review to complete within the next four months, at which point it is expected that the under review status will be resolved.

The rating of Brit Insurance has been placed under review as A.M. Best needs to evaluate the impact of any possible capital restructuring on the group's consolidated risk-adjusted capitalisation.

A positive rating action is unlikely over the next 12-24 months. Factors that could lead to a negative rating action for BIL include deterioration in risk-adjusted capitalisation at either BIL or Brit Insurance, deterioration in BIL's reserves or the disposal of BIL by Brit Insurance. Factors that could lead to a negative rating action 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 "A.M. Best's Ratings & the Treatment of Debt". 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 Company is an insurance rating and information source.

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