Financial Strength Rating

On 23 July 2013, Fitch Ratings affirmed their Insurer Financial Strength (IFS ) ratings at 'BBB+' for Sterling Insurance Co Ltd's (SICL) and Sterling Life Ltd's (SLL) and maintained their outlook for both companies as Stable.

What is a Fitch credit rating?

Fitch's credit ratings provide an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, and repayment of principal and insurance claims. Credit ratings are often used by investors as indications of the likelihood of receiving their money back in accordance with the terms on which they invested. The Insurer Financial Strength rating (IFS) provides an assessment of the financial strength of an insurance organisation. An IFS rating does not address the quality of an insurers claims handling service or the relative value of the products sold.

What does a BBB + mean?

The use of credit ratings defines their function: "investment grade" ratings (International Long-term, 'AAA' to 'BBB-'; Short-term, 'F1' to 'F3') indicate relatively low to moderate credit risk, while those in the "speculative" or "non investment grade" categories (International Long-term, 'BB+' to 'D'; Short-term, 'B' to 'D') either signal a higher level of credit risk or that a default has already occurred. BBB+ remains an "investment grade" and signifies low to moderate credit risk for Sterling. Ratings of BBB- and higher are considered secure and those of BB+ and lower are considered 'vulnerable'.

What does it mean for Sterling?

As mentioned in the previous answer, BBB+ remains an investment grading. Fitch has maintained the financial outlook as stable and this affirmation reflects capital levels commensurate with the rating level, Sterling's business position and the group's moderate investment risk. Sterling continues to maintain excellent trading relationships with many insurance brokers and blue chip partners.

What are the positives?

This rating reflects the fact that Fitch are confident about the capital base of Sterling, the solvency margins in place, the low risk investment portfolios and the strategic aims of the company. Fitch also noted Sterling's improved underwriting profitability in most business lines and successful cost-saving measures. In addition, Fitch recognises that Sterling remains profitable in its creditor business, in the face of still-challenging market conditions and that Sterling has improved its profitability in the fast-growing household segment.

The financial strength of Sterling is evidenced by the message from Fitch on solvency margins, the current return to profit and the fact that Fitch has commented positively on the primary shareholders strong support to date.

What are Sterling's plans going forward?

Sterling remains on course to expand its business profitably and maintain its core values of "working hard, working smart and providing unparalleled service to business partners and customers". Sterling will continue to monitor capitalisation and solvency margins closely, ensure the reinsurance program remains solid and reserving policies adequate. Investment practices will remain prudent and the focus on regulatory and compliance adherence will continue.

Overall Market Outlook

Fitch has maintained it's rating outlook for Sterling Insurance and Sterling Life as stable. It views Sterling's growth of administration income relating to the management of creditor insurance accounts as having a positive effect on the ratings, as the company assumes no underwriting risk on these policies. Non-life profitability declined in 2012, however they expect continued improvements due to Sterling's efforts to discontinue unprofitable business.

Fitch had maintained its rating outlook on the UK non-Life insurance sector as stable. It believes that the UK non-life sector's capitalisation, underwriting and operating trends will remain solid throughout 2013 and do not forecast sensitivity coming from prudent approach to investment that the company adopts.

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