Financial strength rating cut to B++, with further downgrades possible

Rating agency AM Best has downgraded the financial strength rating of Brit Insurance Limited (BIL) to B++ from A-.

The agency has also downgraded BIL’s issuer credit rating to bbb+ from a- and maintains a negative outlook on al ratings.

The action was prompted by Brit’s announcement yesterday that it is selling BIL, its UK holding company, to run-off buyer RiverStone. The transaction is expected to complete in the fourth quarter of this year.

BIL is the holding company for Brit’s UK regional business. Brit sold the renewal rights for this business to QBE in April, leaving BIL to run off the legacy liabilities.

AM best said the BIL downgrade  reflects increased uncertainty as to whether the company’s risk-adjusted capitalisation will be maintained at the current level and further deterioration in its business profile.

The agency noted that BIL’s capitalisation was strong at the end of 2011 and has not deteriorated since. However, it added that he sale to RiverStone “increases uncertainty as to whether prospective risk-adjusted capitalisation will be maintained at the current level.”

AM Best also said the sale of the UK regional renewal rights to QBE had significantly reduced BIL’s business profile. “AM Best believes BIL’s business profile will be further diminished following Brit Insurance’s announcement of its intention to sell BIL to RiverStone Holdings Limited,” AM Best said.

The agency added that BIL’s ratings will remain under negative review pending further discussions with management and completion of the sale to RiverStone.

AM Best will also keep the bbb issuer credit rating of Brit Insurance Holdings under negative review while it continues to assess the impact of any capital restructuring on the group’s risk-adjusted capitalisation associated with the sale of BIL.

Yesterday, Brit chief executive Mark Cloutier told Insurance Times that the sale would boost Brit’s capital flexibility because it would release regulatory and rating agency capital held at the entity.