AM Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of “a-” to Motors Insurance Company Limited (MICL) (United Kingdom). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect MICL’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
MICL’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), prudent reserving practices, demonstrated by a track record of favourable reserve development, and a high-quality investment portfolio. AM Best expects MICL’s prospective risk-adjusted capitalisation to remain at the strongest level, supported by good internal capital generation. An offsetting factor in the balance sheet strength assessment is the company’s high dependence on reinsurance and concentration to one reinsurance counterparty. However, the risks associated with this is mitigated partly by its reinsurers’ excellent credit quality.
MICL has a track record of strong operating performance, demonstrated by a five-year weighted average (2015-2019) return-on-equity ratio of 11.8%. Earnings are underpinned by its stable underwriting performance, demonstrated by a loss ratio that has remained between 51.2% and 56.6% over the past five years. Overall earnings are driven by its underwriting result, with investment income accounting for a relatively small component.
MICL provides motor warranty and ancillary motor policies, primarily distributed by retail intermediaries. The company has a well-established competitive position in the motor warranty market in the United Kingdom, which generates the majority of its premiums, supported by smaller positions in other European countries, as well as Brazil, Turkey and China. Whilst MICL see opportunities to grow cautiously outside of the United Kingdom, AM Best expects the company’s profile to remain limited.
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Associate Financial Analyst
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