Best Affirms Hiscox ‘A-‘ Rating

November 3, 2004

A.M. Best Co. announced that it has affirmed the U.K.’s Hiscox Insurance Company Limited’s financial strength rating (FSR) of “A-” (Excellent), and has assigned an issuer credit rating (ICR) of “a-” to the company. Best has also assigned an ICR of “bbb-” to Hiscox plc, the ultimate parent of Hiscox. The outlook for all ratings is stable.

“The ICR of Hiscox reflects A.M. Best’s opinion, expressed in the credit market scale, as to the overall ability of this entity to meet its senior most obligations which are insurance policies; hence, both the ICR and FSR ratings are at the same level,” said the announcement. “Hiscox plc is a non-operating holding company, and the level of its ICR illustrates the principal of standard notching from the operating company’s (Hiscox) rating.”

Best noted: “Hiscox has a strong business profile in its specialist underwriting fields, which comprise high value householders and professional indemnity business.” The rating agency also said it “believes that business retention in 2004 will remain at a similar high level to the 80 percent by premium volume achieved in 2003. Gross premium income is likely to increase by approximately 10 percent in 2004 as business is developed through the company’s regional offices located in Birmingham, Leeds, Glasgow and Maidenhead.”

Best also indicated that it believes a continued strong financial performance is likely in 2004 and 2005 based on a combined ratio in the range of 95 to 98 percent and stable investment returns of approximately 4 percent. It noted that “at the half-year 2004, Hiscox’ combined ratio was 91.1 percent, compared to the half-year 2003 of 91.8 percent.”

Best also said that the company’s risk-adjusted capitalization is excellent and “is likely to remain sufficient to support anticipated of growth of 20% in net premium income between 2003-2005 through retained earnings.”

However, an offsetting factor, said Best, “is the company’s persistently high operating expense ratio (five year average of 42.6 percent), which is partly due to the high overhead costs of employing specialist staff and partly due to high commission rates.” Best said it “is mindful that this ratio improved by 3.5 percentage points to 39.4 percent in 2003 and believes it is likely to be maintained just below 40 percent in 2004 and 2005.”

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