AM Best has upgraded the financial strength rating to A- (excellent) from B++ (very good) of London General Insurance (LGI) and Combined Life Assurance Company (CLAC).
The rating actions reflect LGI's and CLAC's stable business position, strong and improving operating performance and strengthening capitalisation.
LGI and CLAC are to be acquired by Onex, a Canadian private equity group, with negotiations likely to be completed during the fourth quarter of 2006. AM Best believes the sale provides the companies with the opportunity to grow, especially in the broking business.
AM Best cited significant reduction in counterparty risk arising from the high levels of reinsurance recoverables, as key to improved risk-adjusted capitalisation. This is driven both by the planned cancellation and run off of a large reinsurance agreement and the extensive and increasing use of collaterals used as backing for the remaining recoverables.
AM Best believes that both companies are likely to continue their strong financial performance shown in 2005 when pre-tax profits grew by 86% and 15% for LGI and CLAC, respectively. LGI's combined ratio of 77% is likely to remain stable with the main contributor being the high acquisition costs.
