Navigators’ international arm must deal with an outlook downgrade from A.M. Best due to uncertainties about its post-Brexit business plan in the European Union under new owner The Hartford Financial Services Group.

The Hartford acquired the specialty insurer in 2019 for about $2.1 billion.

Specifically, A.M. Best revised its long-term issuer credit rating outlook for Navigators International Insurance Company Ltd. (NIIC) to negative from stable. The reason: uncertainty over Navigators’ future plan overseas “and the impact that this has on its business profile and its strategic importance to The Hartford,” A.M. Best said.

NIIC began writing marine, casualty and professional liability business in the European Union in 2016, and A.M. Best noted that the effort has been problematic due in large part to Brexit – the UK vote to leave the European Union.

“The company’s strategy has been under review following the UK’s vote to withdraw from the EU and the subsequent transfer of its EU-related business to The Hartford’s Belgium-based operating entity. The volume of business written by NIIC decreased to GBP 7 million in 2019 from GBP 37 million in 2018,” A.M. Best noted.

At the same time, NIIC’s risk-adjusted capitalization, as measured by Best‘s Capital Adequacy Ratio (BCAR), improved to the strongest level at year-end 2019, as a result of the decrease in underwriting risk following the reorganization of The Hartford group’s operations in Europe. The balance sheet strength assessment also factors in Navigators’ high-quality investment portfolio and its comprehensive reinsurance protection, A.M. Best said.

Still, NIIC has struggled from the start, A.M. Best noted, because of large claims that surpassed expectations and a problem with high startup expenses compared to premium. As a result, A.M. Best said it expects the company’s lack of scale to continue harming “prospective underwriting results.”

A.M. Best also affirmed NIIC’s Financial Strength Rating of “A” (Excellent) and the Long-Term ICR of “a+”. Its financial strength rating outlook remains stable.

Source: A.M. Best