Fitch Ratings has affirmed Brit Insurance Holdings B.V.’s Long-term Issuer Default Rating (IDR) at ‘BBB+’ with a Stable Outlook and its subordinated notes at ‘BB+’.
KEY RATING DRIVERS
The affirmations and Stable Outlook reflect the solid financial profile of the Brit group (Brit), which is supported by a strong level of risk-adjusted capitalisation and strong underlying earnings. The group reported an overall profit before tax for 2012 of GBP99.8m (2011 (restated): GBP52.9m). The reported combined ratio, excluding FX effects, was 93.2% (2011: 99.6%), which reflects the relatively benign catastrophe activity in the year compared with 2011. Brit incurred a 5.9 percentage point impact from catastrophe claims in 2012 (2011: 15.1 percentage points). Fitch views as positive the fact that the group reported an improvement of 4.5 percentage points in the attritional claims ratio to 51.9% over the same period.
Brit is owned by Achilles Netherlands Holdings B.V, a holding company majority owned by funds managed by Apollo Management VII, L.P. and funds advised by CVC Capital Partners Ltd. Fitch continues to monitor the group’s profile, specifically that the consolidated group financial leverage as calculated by Fitch is maintained below 30% and that risk-adjusted capitalisation as assessed by Fitch remains at least commensurate with the current ratings. Fitch expects that Brit will take on more investment risk and the agency will continue to monitor the investment portfolio compared with peers’ portfolios.
While the two-part sale of Brit’s UK operation Brit Insurance Limited, in October 2012, reduces the size and diversity of the group, Fitch has a positive view of actions taken by management to streamline operations and exit underperforming insurance classes. The agency will continue to assess the effect of on-going management actions on the financial profile of the group.
RATING SENSITIVITIES
Key rating triggers for a downgrade include failure by Brit to maintain financial leverage and capitalisation at levels at least commensurate with the current ratings. Any marked shift towards a more risky investment portfolio could lead to negative rating pressure.
Fitch views a rating upgrade as unlikely in the near term. Over the longer term, key triggers for a rating upgrade would be a marked and sustained improvement in earnings, coupled with capitalisation commensurate with a better-than-current rating level.
