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UK Club upgraded by S&P to A (Stable)
In May 2014 the UK Club was pleased to announce that Standard and Poor (“S&P”) had decided to restore the Club’s full A (stable) rating. S&P’s full report, explaining the reasoning behind this upgrade, was released on 10 July 2014.
The report explains that, in assessing the Club’s business and financial risk profiles across a set of criteria, S&P have determined an anchor rating of “A”. This is based upon the “extremely strong capital adequacy” and “improved operating performance” of the Club. This anchor rating translates, without adjustment, to an overall financial strength rating of A (stable).
The restored rating is recognition of the financial progress made by the Club both in strengthening its capital and also in operating consistently at technical breakeven over a period. The report also notes that the “club has strong relationships with its members” and anticipates that the “club will retain a leading position among the IG clubs”
The report makes reference to one technical issue relating to “financial flexibility” which, while the Club’s position is described as “strong”, is still rated as “less than adequate”. S&P’s criteria assume that an entity’s financial flexibility is dependent upon making sufficient profits to cover annual interest payments on capital instruments (such as the Club’s Hybrid Capital) by at least 400%. As a mutual, this criterion is inappropriate for judging the financial flexibility of the UK Club. In line with other members of the International Group, the Club has the ability to raise further capital through the supplementary call mechanism. S&P are therefore able to report that the Club has an “underlying strong financial flexibility”.
The upgrade is most welcome and the report endorses the work done by the Club in recent years. However, it is not an end in itself and the Club continues to focus on providing exceptional service to its members as the leading ship-owner controlled provider of P&I insurance.