Best Affirms Sunderland Marine

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) of Sunderland Marine Mutual Insurance Company Limited (SMMI), United Kingdom. The outlook is stable.

The rating reflects the company’s excellent capital position on a risk-adjusted basis, significantly improved operating performance and very good niche business profile. Offsetting factors include the company’s relatively high reliance on reinsurance protection.

Excellent capitalisation–On a risk-adjusted basis, surplus remains excellent as measured by A.M. Best’s risk-based capital model. SMMI benefited from a return to profitability during 2002 such that surplus was boosted by retained earnings. This is forecast to continue in the near-term.

Improved operating performance–SMMI achieved underwriting and bottom line profits in the most recent year–GBP 0.3 million (USD 0.4 million) and GBP 2.0 million (USD 3.2 million), respectively–after two years of substantial net losses. The implementation of various underwriting and operational measures led to an improved combined ratio of 97.6% at year-end 2002. In addition, the company’s operating performance benefited from the divestment of all equity exposure executed in 2001. A.M. Best expects further improvements in operating performance for 2003.

Very good business profile–SMMI is a leading niche insurer of fishing, charter and small commercial vessels (81.3% of gross premiums in 2002) and aquaculture (18.7%), a sector in which it has developed specialised risk management techniques. The company has constructed a geographically well-diversified portfolio and has underwriting operations in the UK and the Netherlands and branch offices in Australia, Canada, New Zealand and North America.

Relative high reliance on reinsurance protection–SMMI cedes a relatively high proportion (33.8% in 2002) of its gross premiums mainly driven by its marine business protection (22%). The company aims to maintain its overall protection as cost effectively as possible, and for the 2002 and 2003 programmes, it has actively revised and modified terms and conditions to offset the effect of escalating reinsurance costs.

However, there are some limitations to the extent of changes that can be made whilst adequately controlling exposures. Market conditions will dictate future reinsurance costs, and A.M Best will closely monitor how this might impact SMMI. However, SMMI’s management does not expect any material increase in reinsurance cost for 2004.