March 4 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has revised Sunderland Marine Mutual Insurance Company's (SMMI) Outlook to Positive from Stable and affirmed its Insurer Financial Strength (IFS) Rating at 'A-'.
KEY RATING DRIVERS
The Outlook revision follows the formal completion of the merger between SMMI and The North of England Protecting and Indemnity Association Limited (North), whereby SMMI will become a subsidiary of North. The Positive Outlook reflects Fitch's expectation that SMMI's financial profile will benefit from being part of a larger group, providing access to further business development opportunities, increased capital strength, partly through the existence of an explicit parental support guarantee, and cost savings achieved through the purchase of external reinsurance on a greater scale.
The increased size of the combined group will allow SMMI to pursue growth opportunities through the contacts and regional offices of North, especially in the Far East, with Fitch considering North and SMMI's strategic platforms to complement each other. SMMI underwrites marine hull and machinery policies, as well as aquaculture, whereas North focuses on marine mutual liability insurance. SMMI's insured fleet of fishing vessels and professionally crewed inshore craft is also in contrast to the larger ocean going or blue water vessels underwritten by North.
North is the world's second-largest marine mutual liability insurer as measured by owned tonnage. As at 20 February 2013 North had premium income of USD365m and total free reserves of USD312m. This would result in a combined group with premium income of over USD500m and free reserves of over USD350m.
North has entered into a parent company guarantee with SMMI whereby North has agreed to be ultimately responsible for SMMI's liabilities, including ensuring that the company is sufficiently capitalised to meet applicable regulatory capital requirements.
The key rating trigger for an upgrade would be a review of the consolidated group with management to determine the prospective consolidated financial strength of the group and in particular the financial strength of North given the parent company guarantee currently in place.
Given the improving financial performance of the group, Fitch views a downgrade as unlikely in the medium term.