Ratings agency AM Best has affirmed the ratings it gave the United Kingdom Mutual War Risks Association. The insurer was awarded a financial strength rating of A- and issuer credit rating of a-, both considered ‘excellent’.
According to AM Best, the ratings reflect UK War Risks’ ‘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 factors include the insurer’s small capital base and concentrated membership profile. It also allocates almost all of its underwriting risk to third-party reinsurers. The approach protects the capital base from adverse loss experience, but leaves the company exposed to counterparty credit risk and availability of reinsurance on acceptable terms. However, this is mitigated by the UK War Risks’ excellent loss record, as well as the diversity and quality of its reinsurers.
UK War Risks has a track record of good but volatile operating performance, and is expected to report its first operating loss since 2010, likely due to poor investment performance. Even though free reserves are down by around 5%, AM Best still described the insurer’s risk-adjusted capitalisation as excellent.