Erika Insurance Downgraded

A.M. Best Co. announced it downgraded the financial strength rating to “B++” (very good) from “A-” (excellent) of Swedish-based Erika Insurance with a stable outlook.

The downgrade reflects Best’s reassessment of Erika’s role within the EF Group, a provider of language courses worldwide, and the increased risk associated with the high dependence upon reinsurance from an affiliated company, Efekta Insurance. The rating also factors Erika’s prospective improvement in earnings following the divestment of third party business. Best noted that Erika insures only those risks of EF clients, making it dependent upon the highly volatile travel industry, negatively impacting Erika’s business flow and risk profile.

Since the divestment of third party business in 2003, there has been a significant increase in the credit and liquidity risk associated with Erika as it cedes 85 percent of the gross premiums written to Efekta. Best said it expects Erika’s operating performance to improve from a lower loss ratio due to the company’s better control of claims for group related business and reduced net premium. The EF business has had a very good record with an average loss ratio of 45 percent.