S&P affirms Ecclesiastical’s A- rating despite slow recovery

Standard & Poor’s (S&P) has affirmed Ecclesiastical’s A- insurer financial strength rating with a stable outlook despite cutting the specialist insurer’s profit forecast.

However the rating agency has lowered Ecclesiastical’s ‘anchor rating’ to bbb+ from a- because of the insurer’s “less than adequate” financial flexibility.

An anchor rating is S&P’s initial rating decision, based a company’s core financial and business risk profile, before it takes into account additional factors such as management quality.

S&P said it affirmed the A- financial strength rating despite the fall in the anchor rating because of its “holistic view of the company’s creditworthiness”.

Lower earnings forecast

S&P said it cut its profit forecast because of Ecclesiastical’s slower-than-expected improvement in underwriting performance.

The lower profit forecast means Ecclesiastical’s ratio of profit to financial obligations and preference chare payments is unlikely to exceed four times on a consistent basis, weakening S&P’s view of the insurer’s financial flexibility.

In its revised earnings forecast, S&P expects Ecclesiastical to report combined operating ratios in the range of 101% to 105% in 2013 and 2014, returning to break-even at worst in 2015.

It expects the insurer to report a net profit of between £35m and £45m in 2013, and to maintain that profit in the following two years.

Downgrade potential

S&P said the stable outlook on Ecclesiastical’s A- financial strength rating reflects its expectation that the insurer will maintain its current levels of capital adequacy and that its underwriting performance will break even by 2015.

However, the agency added that it could lower Ecclesiastical’s rating if its capital adequacy deteriorates, if it sees no improvement in the insurer’s underwriting performance and it fails to break even in 2015.

S&P considers it unlikely that it will raise Ecclesasitical’s ratings in the next two years.