OREANDA-NEWS. Fitch Ratings has affirmed Amlin group's operating companies Amlin AG's and Amlin Europe N.V.'s Insurer Financial Strength (IFS) ratings at 'A+', and the holding company Amlin plc's (Amlin) Long-term Issuer Default Rating (IDR) at 'A-'. The Outlook is Stable. Fitch has also affirmed Amlin plc's subordinated notes at 'BBB-'.

The ratings take into account Fitch's recently updated notching criteria for the insurance sector, published on 14 July 2015. This followed publication of an initial exposure draft of proposed criteria on 12 May 2015. The updated notching criteria appear in Section VI of the insurance master criteria report 'Insurance Rating Methodology'.

KEY RATING DRIVERS
Amlin's ratings reflect the group's strong London Market position, strong technical profitability and supportive risk adjusted-capitalisation.

Amlin's technical performance remained strong, reflected in a Fitch-calculated combined ratio of 86.7% in 2014 (2013: 85.2%). However, the five-year average combined ratio is somewhat weaker, at 90.5%, reflecting poor performance relative to key peers in 2011. The robust recent performance reflects mainly the absence of major catastrophe activity but also on-going improvement in Amlin Europe's underwriting performance.

At end-2014, Amlin's risk-adjusted capitalisation was 'Strong' as measured by Fitch's Prism Factor Based Model, although net operating leverage (ratio of net written premiums to equity) at 1.3x was higher than peers. Shareholders' funds increased to GBP1,786m in 2014 from GBP1,679m in 2013.

Although Fitch regards Amlin group as a medium-sized group, with GBP2.6bn of gross written premiums (GWP) in 2014, it is nevertheless one of the largest London Market players. Its significant presence in the Lloyd's market is viewed as a positive by Fitch. Amlin Syndicate 2001 benefits from a strong track record and good reputation among brokers. As a result, Amlin is the lead on a large proportion of the business it underwrites through the Lloyd's platform.

Fitch believes that Amlin's reserves are strong and that reserve releases will continue to contribute to technical profitability. This view is supported by a five-year average ratio of reserve releases-to-prior year equity of 6%. However, reserve releases in 2014 were lower than the previous year at GBP89.6m (2013: GBP133.5m). This resulted from a material increase in cedants' estimates of claims from the 2010/2011 New Zealand earthquakes (GBP24.4m).

RATING SENSITIVITIES
A downgrade could be triggered by a prolonged decline in capitalisation as reflected in, for example, a decline in Amlin's Prism score to 'Adequate' or below. A combined ratio consistently above 97% (2014: 86.7%) or net return on equity consistently below 10% (2014: 13.7%) could also lead to a downgrade.

Fitch considers an upgrade of Amlin's ratings unlikely given the group's market position and size/scale, which is not expected to change materially in the medium term.