Fitch Ratings has affirmed Brit Insurance Limited’s (BIL) Insurer Financial Strength (IFS) rating at ‘A’ with a Stable Outlook. The agency has also affirmed Brit Insurance Holdings N.V.’s (BIHNV) Long-term Issuer Default Rating (IDR) at ‘BBB+’ with a Stable Outlook and its subordinated notes at ‘BB+’.
The rating action follows both the publication of FYE2010 results for Brit Insurance Group on 25 February 2011 and the subsequent announcement made on 9 March by Achilles Netherlands Holdings B.V. (Achilles) confirming that its recommended cash offer to purchase Brit Insurance has been declared wholly unconditional. Achilles is majority-owned by funds managed by the private equity (PE) firms, Apollo Management VII, L.P. (Apollo) and funds advised by CVC Capital Partners Limited (CVC).
The rating affirmations and Stable Outlook reflect Brit Insurance’s solid financial profile, which is supported by both a strong level of risk-adjusted capitalisation and reported FY2010 earnings that exceeded Fitch’s forecast. The affirmation also reflects the agency’s expectation that post-acquisition, the financial profile will remain within the insurer’s existing target range of mid to high ‘A’. This expectation is based on meetings with representatives from both Apollo and CVC.
Fitch will closely monitor Brit Insurance’s post-acquisition profile, specifically that consolidated group adjusted leverage is maintained below 30% and that Fitch risk-adjusted capitalisation remains at a level at least commensurate with the current ratings. Fitch notes that the acquisition of Brit Insurance will not result in an increased level of regulatory capital being required post-acquisition, as a result of the change in ownership. The agency understands that the level of risk assumed within the investment portfolio will be raised modestly in an effort to increase returns and Fitch will also monitor this closely.
Fitch anticipates that Brit Insurance’s existing management team will retain the day-to-day running of the business, with underwriting discipline being maintained and future premium growth being reflective of market conditions. The agency will also monitor the effects of the transaction on Brit Insurance’s ability to retain both strong insurance business and talented staff.
Failure to maintain consolidated group leverage and capitalisation at levels at least commensurate with the current ratings would potentially result in a downgrade. The transition from a public to private company resulting in a significant loss of business or detrimental change in business strategy would also be viewed negatively. A marked and sustained improvement in earnings coupled with capitalisation in excess of the current rating level could result in an upgrade.
Source : Fitch Rating press Release
