OREANDA-NEWS.  Fitch Ratings has downgraded Brit Limited's (Brit), Issuer Default Rating (IDR) to 'BBB' from 'BBB+' and removed it from Rating Watch Negative (RWN). A Stable Outlook has been assigned.

The GBP135m subordinated notes have also been downgraded to 'BB' from 'BB+', in line with Fitch's notching criteria. The subordinated debt rating does not factor in any impact that may arise from the new criteria proposed by Fitch - "Exposure Draft: Insurance Notching Criteria" published on 12 May 2015 and available on www.fitchratings.com (see rating sensitivities below).

Brit was formerly Brit PLC prior to its delisting from the London Stock Exchange, and it continues to be the issuer of the GBP135m subordinated debt.

KEY RATING DRIVERS
The rating action follows the completion of the acquisition of Brit by the Canadian financial services group, Fairfax Financial Holdings Limited (Fairfax).

The downgrade reflects Fitch's view of the financial strength of the Fairfax group as a whole, which constrains Brit's ratings by one notch. This reflects the risk that if the Fairfax group were to come under financial stress, it could seek to extract capital or other resources from Brit to support the rest of the group.

The underlying performance of Brit has been good. Fitch views Brit's solid financial profile, supported by strong risk-adjusted capitalisation and underlying earning, as a strong positive factor. Brit reported on overall profit after tax for 2014 of GBP139m (2013: GBP99.5m) and a combined ratio, excluding the effects of foreign exchange movements, of 89.5% (2013: 85.4%). Fitch expects Brit's underlying earnings and risk-adjusted capitalisation to remain supportive of the current ratings.

Fairfax posted net income of USD1.6bn in 2014 (2013: USD0.6bn loss). Its consolidated combined ratio dropped to 90.8% in 2014 from 92.7% in 2013, 99.9% in 2012 and 114.2% in 2011, due to more modest catastrophe losses.

RATING SENSITIVITIES
If new notching criteria proposed by Fitch are made final, Fitch expects to upgrade the subordinated notes issued by Brit to 'BB+'. No other Brit ratings are expected to be impacted by the proposed changes to Fitch's notching criteria.

The key rating trigger that could result in an upgrade of Brit would be what Fitch views as improvement of the Fairfax group's financial strength. Similarly, deterioration in the financial strength of the Fairfax group could result in a downgrade of Brit.