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FOR IMMEDIATE RELEASE
LONDON - APRIL 11, 2014 10:02 AM (EDT)
A.M. Best has affirmed the financial strength rating of A- (Excellent) and issuer credit rating (ICR) of "a-" of The United Kingdom Mutual War Risks Association Ltd. (UK War Risks or the Club) (United Kingdom). The outlook for both ratings remains stable.
The ratings of UK War Risks reflect its excellent risk-adjusted capitalisation, track record of good operating performance and its established business profile as a specialist underwriter of war risk insurance for ships.
Offsetting rating factors include the Club's small capital base and concentrated membership profile. In addition, UK War Risks cedes almost all of its underwriting risk to third-party reinsurers, retaining only a small deductible on one part of its reinsurance programme. Although this approach protects its capital base against adverse loss experience, the Club is exposed to upward movement in the cost of reinsurance and counterparty credit risk. This is somewhat mitigated by the Club's excellent loss record as well as the diversity and credit quality of its reinsurers.
The Club has a track record of good, albeit volatile, operating performance. This is evidenced by profit generation in every year since 2010. A positive operating result is also expected to be reported for the year-ending February 2014, with free reserves anticipated to reach approximately USD 32 million, continuing the trend of modest increases over the last five years.
Performance is expected to remain volatile, in spite of the Club's conservative reinsurance strategy. Almost all underwriting risk is ceded to reinsurers; therefore, technical results reflect retained premium income less operating expenses. As the Club has a concentrated membership base, the non-renewal of a single member may lead to a sharp decline in underwriting earnings, owing to a fall in premium income without an offsetting reduction in operating expenses. Furthermore, prospective investment earnings are likely to be volatile due to a relatively high allocation to equities and absolute return funds.
UK War Risks has an established specialist business profile indemnifying ships against war risks that are typically excluded from standard hull and protection and indemnity policies. The Club was founded in 1913 as a mutual insurer and began to accept non-U.K. flagged vessels in 2009.
Positive rating actions are unlikely in the short to medium term; however, unexpected poor operating results or a material deterioration in the Club's risk-adjusted capitalisation could lead to negative pressure on the ratings.
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. Best's Credit Rating Methodology can be found at www.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.
This rating announcement has been issued by A.M. Best Europe - Rating Services Limited, which is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.