OREANDA-NEWS. 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 Issuer Default Rating (IDR) at 'A' and its 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.

The affirmation also reflects Fitch's expectation that Admiral will maintain its robust underwriting performance and benefit from a substantial rise in motor insurance premiums in 2015. According to data from confused.com and Towers Watson, premiums for a comprehensive car insurance policy were up 8.1% yoy in 3Q15. Admiral's strong track record of technical profitability is reflected in a reported combined ratio of 82.7% for 1H15 (1H14: 85.1%).

Admiral's capital position is 'extremely strong' as measured by Fitch's Prism factor-based capital model, supported by significant use of co-insurance and reinsurance arrangements. These arrangements are secured under multi-year contracts until 2018 and 2016, respectively, providing substantial capital relief to Admiral. Fitch further views the credit quality of Admiral's co-insurance and reinsurance counterparties as very strong.

Fitch takes a positive view of Admiral's prudent reserving strategy. For 1H15, Admiral reported UK motor reserve releases of GBP92.6m (1H14: GBP73.1m), equivalent to 29% of net earned premiums. Over the past 10 years, Admiral's prior-year reserve releases, excluding reserve releases on commuted reinsurance, have on average amounted to 13% of premiums earned. The agency also expects rising motor insurance premiums to reduce some of the reliance on prior-year reserve development to supplement earnings.

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 (2014: 0.8x).

A downgrade may also result from a loss of the co-insurance contract resulting in an immediate and significant increase in capital requirements and/or significant falls in business volumes.