AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of Premier Insurance Company Limited (Premier) (Gibraltar). The outlook assigned to these Credit Ratings (ratings) is negative.

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

Premier’s ratings were placed under review with negative implications on 7 July 2023, after the company reported a material decline in its year-end 2022 capital and surplus position driven by a large operating loss for the year. Premier booked a material increase in reserves at year-end 2022, due to the uncertainty caused by claims settlement delays and claims data quality issues arising from a change in the claims management system used by its third-party claims handler, who was subsequently replaced.

Following these events, prompt remedial actions were put in place to address operational and reserving issues, which were fully resolved in 2023. However, the assigned negative outlooks reflect ongoing pressures on the company’s operating performance in 2024, with Premier expected to report a third consecutive year of underwriting losses in 2023, due to challenging conditions within the U.K. motor insurance segment.

Premier’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), that is expected to recover to the strongest level in 2023, having previously declined to the adequate level at year-end 2022. The recovery follows several capital injections from its parent holding company, Premier Underwriting Holdings (Gibraltar) Limited (PUHGL). Offsetting balance sheet strength factors include the company’s small and reduced capital base in absolute terms, which increases its sensitivity to potential balance sheet volatility. In addition, AM Best views Premier’s financial flexibility to be limited, with additional assets at PUHGL considered to be highly illiquid. The balance sheet strength assessment also factors in a neutral holding company impact arising from PUHGL, which operates without any debt and is expected to maintain risk-adjusted capitalisation at the strongest level on a consolidated basis.

While Premier has demonstrated profitability over the underwriting cycle, with a 10-year (2013-2022) weighted average combined ratio of 98.1%, recent results have fallen below AM Best’s expectations due to industry-wide pressures on underwriting performance, leading to a weakened five-year (2018-2022) weighted average combined ratio of 104.9%. Based on unaudited financial statements for year-end 2023, Premier is expected to report further underwriting and overall losses for the year. Prospectively, AM Best expects underwriting performance to improve following significant rate increases implemented throughout 2023, as well as a scale-down of the company’s non-core books, which historically run at higher loss ratios.

As a mono-line motor insurer in the United Kingdom, Premier’s small book of business is concentrated by product offering and geography. Prospectively, AM Best expects the company to focus on its niche segment, which targets a lower-risk profile and has a demonstrated track-record of underwriting profitability. Nonetheless, the U.K. motor industry remains highly competitive and its challenging dynamics represent a significant headwind to the company in achieving its business plans.

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.

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