(Repeat for additional subscribers)
June 27 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Sterling Insurance Co Ltd's
(SICL) and Sterling Life Ltd's (SLL) Insurer Financial Strength (IFS) ratings at
'BBB+'. The Outlooks are Stable. The companies are the underwriting members of
the UK-based Sterling Insurance Group Limited (together referred to as
KEY RATING DRIVERS
The affirmation is based on Sterling's supportive risk-adjusted capitalisation
and improved underwriting profitability. However, Sterling's ratings remain
constrained by its limited scale and operating profile.
Sterling is a niche UK insurance company that has established a recognisable
franchise with a strong distribution network. However, with GBP155m of gross
written premiums in 2013, it remains a small player in a competitive market. Its
relatively small scale and concentration in the UK market make it more difficult
for Sterling to control pricing, access external finance and absorb a potential
fall in demand for its products.
Fitch expects SICL's and SLL's levels of risk-adjusted capitalisation to remain
stable and supportive of the rating. In 2013, regulatory solvency was 139% and
194% for SICL and SLL, respectively.
Sterling's net income continued its positive trend and increased to GBP6.1m in
2013 (2012: 4.5m, 2011: GBP3.6m), underpinned by robust technical results and a
strong investment return. This also includes GBP1m of income from Sterling's
administration business which is expected to reduce over the next 12- 24 months
as this business winds down naturally.
Non-life technical profitability was strong in 2013, reflected in an improved
Fitch-calculated combined ratio of 96.7% (2012: 98.6%). Losses from the storms
and floods of December 2013 and January 2014 are expected to fall broadly within
Sterling's usual allowance for weather-related losses. Fitch expects this
positive trend to continue in the absence of significant weather-related losses
in 2H14. The performance of the life business remained relatively stable,
contributing GBP699,000 to the 2013 technical results (2012: GBP908,000).
Fitch considers an upgrade unlikely in the medium term given the company's
limited scale and operating profile.
A significant deterioration in underwriting performance, weak investment results
and/or more active capital management leading to a depletion of capital would
put downward pressure on the ratings. A Fitch-calculated combined ratio in
excess of 105% over a sustained period or the introduction of further risk into
the investment portfolio could also lead to a downgrade.