AMSTERDAM–(BUSINESS WIRE)–AM Best affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of Fortegra Europe Insurance Company Limited (FEI) (Malta). The outlook for these Credit Ratings (ratings) is stable.
The ratings reflect FEI’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operational performance, limited business profile and appropriate management of business risks. The ratings also reflect FEI’s strategic importance to Fortegra Financial Corporation (FFC), a US insurance group specializing in underwriting programs for the personal and commercial P&C lines of business. FEI is a subsidiary start-up of FFC, incorporated in Malta, with a history of financial and operational support from FFC. FEI was created in 2018 to develop warranty and specialized motor insurance activities in several European markets.
FEI’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is at the highest level, based on the 2020 year-end audited financial statements. AM Best expects that the company’s BCAR scores will remain at the highest level prospectively, based on its projections. FEI’s balance sheet strength is supported by its conservative investment portfolio, good liquidity and further capital contributions from FFC during the start-up phase. FEI received approximately USD 41 million in capital injections from FFC between 2019 and 2021. In addition, FEI benefits from a quota share agreement entered into with FFC in 2021 which partially mitigates the high risk-adjusted capital requirements in BCAR , driven by high underwriting risk and reflected in the higher capital charges applied to a start-up.
At the end of 2020, FEI’s second full year of operation, the company generated a profit of $3.3 million (2019: $0.2 million). The combined ratio at the end of 2020 was 80.8% (as calculated by AM Best) compared to 87.3% reported in 2019. This improvement is attributed to a lower expense ratio, due to the growth of the business . Additionally, the return on equity (ROE) at the end of 2020 was 8.3% (2019: 1.1%) (as calculated by AM Best). AM Best expects FEI to continue to generate profitable underwriting results, supported by local and group underwriting expertise.
FEI is still considered a start-up, as such its portfolio is relatively small and has limited diversification by product line and geography; its underwriting exposure is concentrated in motor cover in the UK. During 2019, FEI accelerated its growth compared to its initial business plan following the unexpected exit of another market player; however, written premiums have since stabilized. FEI uses third party administrators and brokers to distribute its products. FEI’s significant reliance on a number of outsourcing partners represents a source of risk, which it aims to mitigate through careful selection, management and monitoring.
FEI’s ratings are supported by its parent company, FFC, and play an important strategic role in the expansion of FFC’s operations in Europe. FEI shares branding and management with its parent company. FFC’s support is demonstrated by multiple capital contributions to FEI between 2019 and 2021, and the expectation that it will provide additional capital to support the business during the five-year start-up phase.
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