Fitch Ratings has kept Utmost PanEurope, Utmost Limited and Utmost Worldwide on a ‘strong' A rating for insurer financial strength (IFS), while also affirming Utmost Group's issuer default rating (IDR) at BBB+.
In its latest rating update, published on 26 July, Fitch said the outlook was ‘stable', reflecting the "group's continued strong capitalisation and leverage, a strong business profile and good financial performance despite challenging market conditions due to the Covid-19 pandemic".
It further highlighted how after the acquisition of Quilter International, which was announced in April 2021, Utmost International will become the largest insurer in this segment based on assets under administration.
We expected financial leverage to slightly increase due to the acquisition of Quilter International, but to remain below 30%."
Utmost Life and Pensions, which acquires closed life insurance books in the UK has a moderate competitive position in the UK life insurance market, it said.
"Utmost Group has grown significantly in the past five years, acquiring international and investment bond businesses from several European insurance groups, and closed books in the UK. The operational integration of these acquisitions carries some execution risks, which are mitigated by the group management's satisfactory record with similar acquisitions.
Utmost Group's capitalisation and leverage is strong, underlined by an 'Extremely Strong' Prism Factor-Based Capital Model (Prism FBM) score and strong financial leverage ratio (FLR) of 24% at end-2020. Utmost Group has a strong group Solvency II (S2) solvency capital requirement (SCR) ratio of 183% at end-2020."
Fitch also said it "expected financial leverage to slightly increase due to the acquisition of Quilter International, but to remain below 30%, and the Prism FBM score and S2 SCR ratio to remain stable".
Utmost Group reported a strong return on equity (ROE) of 9% in 2020, which was supported by gains from bargain purchases of acquired businesses, but negatively affected by the amortisation of acquired value of in-force business (ViF) and integration costs, it said.
"We expect the group to report an EBITDA of GBP50 million-GBP60 million, which will further increase following the acquisition of Quilter International in the coming years. However, we expect net income to be subdued due to the amortisation of the acquired ViF and integration costs.
Utmost Group takes on limited investment risk as over 90% of its technical reserves are for investment bond policies and unit-linked policies for which policyholders bear the investment risk. Assets backing non-linked business are dominated by investment-grade bonds (81% of non-linked investments) and cash (14%)."
The ratings agency added: "The group's fixed-charge coverage (FCC) was strong in 2020 at 8x (2019: 7x). However, FCC was weak and volatile before 2019 as a consequence of acquisitions. Fitch expects Utmost Group's FCC to remain strong in 2021 and 2022.
The group has no history of debt funding via capital markets and funding sources used so far are limited in diversification. However, Fitch expects Utmost Group to be able to issue subordinated or senior bonds either via private or public listings. Oaktree, Utmost Group's majority shareholder, is also a potential funding source."