Best Affirms FSR for New Technology Insurance in Ireland

December 12, 2005

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of New Technology Insurance (NTI) (Ireland), an insurance subsidiary of The Carphone Warehouse Group plc (CPW) (United Kingdom). The outlook on both ratings has changed from stable to negative.

The ratings reflect NTI’s excellent prospective risk-adjusted capitalization, though it is highly dependent upon investments within the group, and a very good operating performance. The offsetting factor is the company’s declining business profile.

NTI provides cover for theft, fire and accidental damage to mobile phones, excluding liability. A.M. Best believes that NTI’s business profile is likely to decline following the company’s decision to reinsure all the UK-originated business to its newly formed non-rated affiliate, The Carphone Warehouse Assurance Limited (TCWA). This will result in a reduction of approximately 30% in net written premium from the financial year 2004-05 to 2005-06, placing increased pressure on the company’s efforts to grow third party business.

In A.M. Best’s opinion, it is vital that NTI implements successful strategies to attract projects emanating outside CPW, as the company becomes entirely reliant upon this source and on the group’s Continental and Southern European business to generate net premium income.

In A.M. Best’s opinion, NTI’s operating performance is expected to be very good over the next two years despite deteriorating from the excellent level in 2004-05, driven by a reduction in underwriting results. A.M. Best projects NTI’s pre-tax profits to fall by approximately 25%-30% over the same period compared to GBP 26.8 million (USD 50.4 million) in 2004-05.

The combined ratio is expected to remain within the range of 70%-75% (72.7% at year-end March 2005), and the excellent loss ratio of 29% is likely to remain stable as the company implements a new claims control system that screens the frequency and type of claims made by policyholders. A.M. Best expects the net investment yield to remain modest at approximately 4% and believes that the company’s new investment approach in allocating funds within CPW increases its exposure to risk.

A.M. Best believes that NTI’s prospective risk-adjusted capitalization is likely to remain excellent over the next two years; however, dependence upon investments within the group will increase dramatically.

Despite the decline in insurance risk retained, the company is exposed to counterparty risk both to its parent and to TCWA due to the review of its reinsurance and investment policies.

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