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June 01 - Fitch Ratings has published Amlin AG's (AGG) Insurer Financial Strength (IFS) rating of 'A+'. Fitch has also published Amlin plc's Long-term Issuer Default Rating (IDR) rating of 'A-'. Amlin plc's subordinated notes are published at 'BBB-'. The Outlooks for AGG's IFS and Amlin plc's IDR ratings are Stable. Amlin Corporate Insurance N.V.'s (ACI) IFS rating is affirmed at 'A', and the Outlook remains Positive.
The strength of Amlin's capitalisation, as assessed by Fitch on a risk-adjusted basis, underpins the group's ratings. Capitalisation based on this measure is expected to return to being commensurate with the current rating level at end-2012, following a reduction in shareholders' funds at end-2011. The agency views the key short-term risk for Amlin's capital position as the industry's common risk of a level of catastrophic loss in excess of the historical norm, in 2012.
The re-insurance industry incurred an unprecedented level of insured natural catastrophe losses in 2011, which led Amlin to report a combined ratio of 108% (2010: 89%), including 27 percentage points of catastrophe losses. While 2011 results fell short of Fitch's expectations, Amlin's cross-cycle performance metrics remain commensurate with the published rating level. The agency also anticipates that a recovery of earnings through 2012 will restore performance metrics to historical levels. This expectation is reflected in the Stable Outlook.
Fitch considers that the consistent level of cross-cycle profitability achieved by Amlin in recent years is the result of a combination of its strong franchise, underwriting discipline, prudently administered investment strategy and solid management. The agency considers that Amlin is potentially better placed than some peers, to weather a protracted period of low investment returns, noting that the insurer has historically used this source of income to supplement, rather than drive profitability.
The Positive Outlook on ACI's IFS rating indicates that Fitch would consider upgrading ACI if the integration process in the Amlin Group is successfully finalised and if the company were able to restore profitability and sustain a combined ratio below 100%. The ability for Amlin to successfully execute its strategic plan to develop and diversify its business by geography and insurance class is viewed as an evolving rating factor. While all operating companies are considered to be core, the scale of the ACI acquisition in relation to Amlin's existing business highlights the importance of achieving its successful integration, as well as the potential cost if this is not achieved. Fitch views Amlin's current senior management team as being the key factor in determining the outcome of this venture.