AM Best Removes from Under Review With Negative Implications, Downgrades Issuer Credit Rating of Universal Insurance Company (Guernsey) Limited

BY Business Wire | CORPORATE | 03/24/23 10:34 AM EDT

LONDON--(BUSINESS WIRE)-- AM Best has removed from under review with negative implications and downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to ?bb? (Fair) from ?bb+? (Fair) and affirmed the Financial Strength Rating of B (Fair) of Universal Insurance Company (Guernsey) Limited (UIC) (Guernsey). The outlook assigned to these Credit Ratings (ratings) is negative.

The ratings reflect UIC?s balance sheet strength, which AM Best assesses as adequate, as well as its strong operating performance, very limited business profile and marginal enterprise risk management (ERM).

The downgrade of the Long-Term ICR reflects a deterioration of UIC?s balance sheet strength following the payment of a GBP 8 million extraordinary dividend to its ultimate parent, Universal Holdings (Guernsey) Limited (UHL). This has resulted in a significant reduction of the company?s capital base to approximately GBP 2.5 million, leading to heightened sensitivity of its balance sheet strength to any shocks, with its risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), falling notably on an AM Best stressed basis at the fiscal year-end 30 June 2022.

The negative outlook reflects pressures on UIC?s creditworthiness associated with the uncertainty in its strategic direction as UHL restructures its operations and plans to create a new risk carrier in Gibraltar.

Since its creation in 2014, UIC has achieved strong operating performance. The company has reported a five-year (2019-2022) weighted average return-on-equity ratio of 33.3%. Earnings are derived primarily from the company?s underwriting profitability, as seen in its five-year weighted average combined ratio of 19.8%, whilst the very conservative and highly liquid investment portfolio produces marginal but stable returns.

UIC?s underwriting book of business is highly concentrated, as it operates in a single line of business in a single territory. In addition, AM Best views UIC?s business model to be vulnerable to potential changes in the U.K. motor market.

UIC?s ERM framework is considered evolving. The marginal ERM assessment factors in the high risk profile stemming from UIC?s business model, which involves significant concentration risk.

This press release relates to Credit Ratings that have been published on AM Best?s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best?s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best?s Credit Ratings. For information on the proper use of Best?s Credit Ratings, Best?s Performance Assessments, Best?s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best?s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit

Copyright ? 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Source: AM Best

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.