December 7, 2016 / 2:50 PM / in 8 months

Fitch Affirms Admiral's IFS Rating at 'A+'; Outlook Stable

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(The following statement was released by the rating agency) LONDON, December 07 (Fitch) Fitch Ratings has affirmed Admiral Insurance (Gibraltar) Limited's and UK-based Admiral Insurance Company Limited's - the two main operating entities of Admiral Group plc (Admiral) - Insurer Financial Strength (IFS) Ratings at 'A+'. The agency has also affirmed Admiral's Long-Term Issuer Default Rating (IDR) at 'A' and subordinated notes at 'BBB'. The Outlook on the IFS and IDR ratings is Stable. KEY RATING DRIVERS The affirmation reflects Admiral's leading position in the UK motor insurance market, very strong capitalisation supported by solid and stable earnings, and prudent reserving practices. The ratings are constrained by Admiral's medium scale and concentrated business profile. Admiral's capital position is 'extremely strong' as measured by Fitch's Prism Factor-Based Model (FBM) capital score. The insurer's financial profile, including capitalisation, benefits from significant use of co-insurance and reinsurance arrangements, with Admiral sharing 40% of its UK insurance risks with Great Lakes, a subsidiary of Munich Re (IFS AA/Stable). These arrangements are secured under multi-year contracts until 2018, providing substantial capital relief to Admiral. Fitch views the credit quality of Admiral's co-insurance and reinsurance counterparties as very strong. The affirmation also reflects Fitch's expectation that Admiral will maintain its robust underwriting performance. Admiral's strong track record of technical profitability is reflected in a reported combined ratio of 82.2% for 1H16 (1H15: 82.7%), reflecting favourable conditions in the UK motor insurance market. Admiral continued to push through motor insurance price increases in 2016. According to the data from the Association of British Insurers, premiums for a comprehensive car insurance policy were up 9.2% yoy in 3Q16. Although the government announced recently that it will press ahead with whiplash reforms consultation, we do not expect to see a significant impact on prices before 2018 because of the sector's increased focus on underwriting profitability in an environment of low investment returns and lower capacity for reserve releases. Fitch takes a positive view of Admiral's prudent reserving strategy. For 1H16, Admiral reported UK motor reserve releases of GBP69m (1H15: GBP93m). Excluding reserve releases on commuted reinsurance, releases at 1H16 were GBP56m (1H15: GBP50m), equivalent to 29% of net earned premiums compared to an average over the past 10 years of 14% of premiums earned. The insurer's strategy is to maintain a buffer above actuarial best estimate, allowing the group to support underwriting results with reserve releases every year. RATING SENSITIVITIES An upgrade is unlikely in the medium term given Admiral's concentrated business profile and limited geographical diversification. A marked deterioration in technical and/or overall profitability, particularly compared with peers, could result in a downgrade. A downgrade could also be triggered by a substantial erosion of capital equivalent to a sustained increase in net underwriting leverage (premiums/equity) to 1.5x (2015: 0.8x). A downgrade may also result from a loss of Admiral's co-insurance contract, resulting in an immediate and significant increase in capital requirements or significant falls in business volumes. Contact: Primary Analyst Ekaterina Ishchenko Associate Director +44 203 530 1532 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Graham Coutts Director +44 203 530 1654 Committee Chairperson Federico Faccio Senior Director +44 203 530 1394 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. 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