AM Best affirms credit ratings of Folgate Insurance with stable outlook

AM Best affirms credit ratings of Folgate Insurance

LONDON, UK: AM Best has affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bb+” of Folgate Insurance Company Limited.

The outlook of these ratings is stable.

The ratings reflect Folgate’s balance sheet strength, which AM Best categorises as adequate, as well as its adequate operating performance, very limited business profile and appropriate enterprise risk management.

Folgate was acquired by its parent, Anglo London Limited (ALL), in 2014, and re-commenced active underwriting in September 2015, writing quota-share reinsurance for business sourced by an affiliated company, Anglo Pacific Consultants (London) Limited (APC).

APC is a managing general agent specialising in commercial lines insurance for small and medium-sized businesses. In 2018, Folgate received an insurance licence, and as part of its new business model, secured a co-insurance agreement with a Lloyd’s syndicate to support its capacity.

According to the agreement, effective from January 2019, Folgate accepts 30% of APC’s risks, with the remainder placed with the Lloyd’s syndicate. Folgate expects gross written premiums of approximately GBP 7.5 million in 2019.

Folgate’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which is expected to remain at least at the very strong level.

However, risk-adjusted capitalisation is exposed to potential volatility in stressed scenarios, due to its small capital base. The impact from ALL on balance sheet strength is assessed as negative, due to its inadequate consolidated BCAR scores, high financial leverage and limited financial flexibility.

The insurer’s underwriting portfolio is highly concentrated by product and geography and is dominated by U.K. commercial lines insurance. In addition, AM Best views Folgate’s position in the competitive U.K. market as vulnerable and highly dependent on third parties.

This is partly mitigated by APC’s underwriting expertise and existing broker relationships, which benefit Folgate’s business profile.

AM Best expects Folgate’s underwriting results to be positive for 2019, based on a reported technical profit of GBP 0.5 million for the first nine months of the year.

Folgate is managed by APC, whose commissions make up most of the insurer’s operational expenses. Prospective operating performance is expected to benefit from modest investment income.

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