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Fitch Rates Elite Insurance IFS 'BBB-'; Outlook Stable
December 14, 2016 / 2:31 PM / a year ago

Fitch Rates Elite Insurance IFS 'BBB-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, December 14 (Fitch) Fitch Ratings has assigned Gibraltar-based Elite Insurance Company Limited an Insurer Financial Strength (IFS) rating of 'BBB-' with a Stable Outlook. KEY RATING DRIVERS The rating reflects Elite's adequate capitalisation, strong underwriting performance and conservative investment strategy. The rating is limited by Elite's somewhat weak business profile. According to Fitch's Prism Factor Based Model based on the group's consolidated accounts, Elite's capital score is 'adequate', driven by high business volumes relative to equity. This negative feature is somewhat offset by a conservative investment portfolio. The ratio of net written premiums to equity for the financial year to March 2016 of 2.4x corresponds to Fitch's 'BBB' median guideline. The company's Solvency II coverage ratio of 139% at 31 March 2016 is supportive of the rating. Elite's strong track record of underwriting profitability is positive for the rating. The company reported strong earnings in each of the past five years with a five-year average combined ratio of 88% and a five-year average return on equity of 26%. Profitable underwriting is an important source of earnings for Elite given its limited investment returns. After-the-event (ATE) legal expenses insurance remains Elite's most profitable line of business. At FYE16 it accounted for 66% of underwriting profit but only 27% of net earned premiums. Fitch views Elite's low investment risk strategy as positive for the rating. The company invests primarily in cash and short-term deposits, which accounted for 97% and 99% of the investment portfolio as of 31 March 2016 and 31 March 2015, respectively. Cash and term deposits are held in the UK with seven international banks. However, Elite's exposure to currency mismatch could expose the company to exchange rate volatility. Fitch views Elite's business profile as somewhat weak due to the company's small absolute size and lack of competitiveness in some of the target markets. Historically, ATE legal expenses insurance was Elite's niche core market supported by the company's in-house legal expertise. However, with the UK Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) reforms introduced in 2013, the ATE insurance market has shrunk significantly, causing a material decline in Elite's ATE insurance business. The company started to diversify its insurance portfolio into other general insurance lines in 2009. Fitch views diversification positively for the rating; however, the agency believes that Elite may struggle to expand further in the general insurance space and maintain current profitability given the highly competitive target markets. RATING SENSITIVITIES An upgrade is unlikely unless Elite can demonstrate successful profitable growth of its franchise. The rating could also be upgraded if the Prism FBM capital score sustainably improves to 'Strong', providing that Elite maintains strong underwriting and overall profitability. Weakening of capitalisation as measured by a Prism FBM capital score of 'Somewhat Weak' could lead to a downgrade. The rating could also be downgraded if Elite's underwriting performance deteriorates, with a Fitch-calculated combined ratio of over 100% for a sustained period. Contact: Primary Analyst Ekaterina Ishchenko Associate Director +44 20 3530 1532 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Graham Coutts Director +44 20 3530 1654 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Date of relevant rating committee: 9 December 2016 Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016458 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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