Reduced profitability blamed but outlook stable
Fitch Ratings has downgraded Brit Insurance Limited (BIL) Insurer Financial Strength (IFS) Rating to 'A' from 'A+' and has downgraded the subordinated notes issued by Brit Insurance Holdings plc (BIH) to 'BBB-' from 'BBB', and downgraded BIH's Long-term Issuer Default Rating (IDR) to 'BBB+' from 'A-'. The Outlooks for BIL's IFS rating and BIH's Long-term IDR have been revised to Stable from Negative, respectively.
Fitch said the downgrade reflects a deterioration in the quality of BIL's and the wider Brit Group's (Brit) profitability, and Fitch's concerns regarding the near-term volatility of the insurance group's earnings. The Stable Outlook reflects the agency's view that current capitalisation at both the BIL and BIH levels remains supportive of the respective ratings, reducing the effects of anticipated earnings volatility.
The balanced contribution of both gross written premiums (GWP) and operating profit between Brit's three strategic business units is creditable and should provide a further level of stability. Fitch also views the experienced and disciplined approach of Brit's senior management as positive.
Fitch does not intend to take any immediate action on Brit's ratings following the insurance group's public confirmation of its interest in acquiring Lloyd's insurer Chaucer Insurance Holdings plc. The agency notes the advanced stage of Brit's proposal for a possible all share offer and the interest in Chaucer also expressed by other parties.
Fitch will continue to monitor the situation closely. In the event that Brit makes an offer, Fitch will review all ratings and issue a public comment. Any potential rating action will consider the terms and conditions and structure of the offer, as well as the proposed integration plans. The likely impact of Chaucer's current capital position and claims development arising from its current book of business would form an important part of Fitch's review, should an offer be made.
