S&P and Moody’s rate Direct Line’s UKI

Direct Line Insurance Group subsidiary UK Insurance (UKI) has been rated A by Standard & Poor’s and A2 by Moody’s. Both ratings have a stable outlook.

UKI is the principal underwriting entity of Direct Line Insurance Group – effectively the holding entity for Direct Line Insurance Group’s various underwriting operations, which include Direct Line, Churchill. and broker-only insurer NIG. This follows a Part VII transfer completed last December, which combined the insurers into UKI.

Direct Line Group, formerly RBS Insurance, indicated to Insurance Times late last year that it was seeking a rating late as part of its separation from Royal Bank of Scotland.

“We’re pleased with these ratings,” Direct Line Group finance director John Reizenstein said in a statement. “It is another important step as we move towards a stand-alone group prior to divestment from Royal Bank of Scotland Group.”

The ratings will be particularly good news for Direct Line Group’s commercial insurance operations, which include NIG and Direct Line for Business, because commercial buyers and brokers rely heavily on ratings when selecting their insurer panels.

Buyers typically look for an S&P rating of at least A- (or at least A3 on the Moody’s rating scale). The new UKI ratings are one notch above this industry minimum.

S&P said its rating of UKI reflected the insurer’s “extremely strong capital adequacy ratio”, strong competitive position and conservative investment strategy.

However it added that these positive factors were offset by the group’s historically volatile operating performance and the risks associated with the separation from Royal Bank of Scotland.

Moody’s agreed with the positive points, but on the negative side highlighted Direct Line Group’s comparatively weak geographic and business diversification, along with the challenge of sustaining recent performance within the highly-competitive UK motor insurance market.

Direct Line Insurance Group was recently renamed from RBS Insurance Group in preparation for its planned split later this year from the Royal Bank of Scotland.