AMSTERDAM–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Fortegra Europe Insurance Company Limited (FEI) (Malta). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect FEI’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect FEI’s strategic importance to the Fortegra Financial Corporation (FFC) group, a U.S. insurance group specialising in program underwriting for credit, warranty, auto, home and other property/casualty business. FEI is a Malta-incorporated start-up subsidiary of FFC with a track record of financial and operational support from FFC. FEI was established to write warranty and specialty motor insurance business in several European markets.
FEI’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which AM Best assessed at the strongest level as at year-end 2019, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects the company’s BCAR to weaken to the strong level as at year-end 2020 before returning to the strongest level in subsequent years. The drop in risk-adjusted capitalisation during 2020 can be attributed to strong growth in excess of the initial business plan and the associated additional underwriting risk the company assumed. FEI’s balance sheet strength is supported by a conservative investment portfolio, good liquidity and further capital contributions from FFC during the start-up phase.
At year-end 2019, FEI’s first full year of operation, the company generated a profit of USD 0.2 million. The company reported a net profit of USD 4.7 million in the third quarter of 2020, supported by robust underwriting profits and moderate investment returns. AM Best expects FEI to continue generating profitable technical results, supported by local and group underwriting expertise.
FEI is still considered a start-up company, and as such its portfolio is small and has limited diversification by product line and geography; its underwriting exposure is concentrated in auto coverage in the United Kingdom. During 2019, FEI accelerated its growth relative to its original business plan following the unforeseen exit of another market participant, however premium written has since returned to planned volumes. Going forward, AM Best expects premium growth to stabilise, as FEI has capitalised on this business opportunity. FEI uses third-party administrators and brokers to distribute its products. FEI’s significant reliance on a number of outsourcing partners represents a source of risk, which it aims to mitigate through careful selection, management and monitoring.
FEI’s ratings benefit from the support of its parent, FFC, and plays a strategically important role in expanding FFC’s operations into Europe. FEI shares branding and management with its parent. FFC’s support is demonstrated by recent capital contributions to FEI, and the expectation that it will provide further capital to support the company during the five-year start-up phase.
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