OREANDA-NEWS. Fitch Ratings has affirmed Brit Limited's (Brit) Long-term Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook and its subordinated notes at 'BB'.

KEY RATING DRIVERS
The ratings are constrained by Fitch's view of the financial strength of its owner, Canadian financial services group, Fairfax Financial Holdings Limited (Fairfax). This reflects the risk that if the Fairfax group comes under financial stress, it could seek to extract capital or other resources from Brit to support the rest of the group.

Fitch believes that the financial profile of Brit is sound, supported by strong risk-adjusted capitalisation and underlying earnings. At end-2014, Brit's risk-adjusted capitalisation was 'Strong' as measured by Fitch's Prism Factor Based Model, although the ratio of net written premiums to equity of 1.2x was high relative to Lloyd's market peers.

Following the acquisition by Fairfax, Brit has begun to de-risk its investment portfolio, which Fitch views positively. The company has begun to shift away from structured and corporate debt in favour of government bonds and cash. At end-1H15 government debt increased to 45.7% of total investments (end-2014: 19.6%) and corporate debt was reduced to 11.3% (end-2014: 28.9%).

In recent years Brit has reduced its exposure to the reinsurance business, which is being impacted by a softening market, to focus on short tail direct insurance and profitable specialty lines. Brit has achieved consistently strong underwriting results with a combined ratio of less than 100% for each of the last five years, and a Fitch-calculated three-year average combined ratio of 88.5%, assisted by a continued benign catastrophe environment.

Brit is a medium-sized non-life insurer, but the largest insurer to write exclusively through Lloyd's of London (Lloyd's) and its presence in the Lloyd's market is viewed positively for the rating.

Fairfax is a Canadian insurance holding company whose largest subsidiaries operate primarily in the US and Canada, but also has a significant presence in Asia and Latin America. At end-December 2014 Fairfax had total assets of GBP23bn and gross written premiums of GBP4.5bn, compared with Brit's total assets of GBP3.8bn and premiums of GBP1.3bn.

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