A.M. Best Co. has assigned a financial strength rating of B++ (Very Good) and an issuer credit rating of “bbb” to Wurttembergische und Badische Versicherungs-AG (WUBA) (Germany). The outlook for both ratings is stable.
The rating of WUBA reflects its very good risk-adjusted capitalisation, moderate business profile and good operating performance. An offsetting factor is A.M. Best’s concern about the length of the investment horizon of the sole shareholder, J.C. Flowers & Co., LLC.
WUBA’s risk-adjusted capitalization has been restored to a very good level through the build up of equalization reserves and reduction of its portfolio following several years of underwriting losses, especially in commercial property and marine hull insurance.
A.M. Best anticipates that the company’s capitalization will continue to be supported by retained earnings of approximately EUR 2.5 million (USD 3.0 million) in 2005 (compared to EUR 1.4 million (USD 1.7 million) in 2004) and further allocation to the equalization reserves, albeit on a smaller scale due to the restructuring of its reinsurance programme.
WUBA’s business profile as a mid-sized German commercial line insurer is moderate, and the company is likely to reduce its gross premium income by a further 7% to approximately EUR 165 million (USD 192 million) in 2005. The decline is due mainly to the further cancellation of unprofitable business, particularly in the property and engineering business.
The company’s underwriting results significantly improved in 2004 with an excellent combined ratio of 95.6% as WUBA continues to adhere to strict underwriting controls. However, A.M. Best expects a deterioration of the net combined ratio to approximately 98% in 2005 due mainly to the effects of reinsurance, while the gross combined ratio is likely to further improve to approximately 92% (compared to 93.8% in 2004).
The rating also factors A.M. Best’s concerns regarding the length of the investment horizon of J.C. Flowers & Co., LLC given the larger acquisitions the shareholder has made in the past.
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