Statement re reinsurance
Admiral Group PLC
11 October 2004
11 October 2004
Gen Re, Axis increase reinsurance participation with Admiral
Admiral Group plc ('Admiral', or 'the Company') today announces a change to its
proportional reinsurance arrangements for wholly owned underwriting subsidiary
Admiral Insurance (Gibraltar) Limited ('AIGL').
With effect from 1 January 2005, Gen Re and Axis Re Europe ('Axis') have agreed
to increase their reinsurance participation to 5% each of Admiral's total
written premium from previously negotiated shares of 2.5% and 1%, respectively.
Gen Re has secured a 12-month contract and Axis has secured a 24-month contract.
Admiral was able to offer Gen Re and Axis increased AIGL reinsurance capacity
because it decided to exercise an option entitling it to cancel its 2005
reinsurance contract with Converium AG ('Converium') in the event of its credit
rating falling below A-.
As previously disclosed, the Board of Directors has been reviewing the Group's
reinsurance contract with Converium in light of Standard & Poor's decision last
month to lower its credit rating on the reinsurer.
As a result of the Admiral Board's exercise of that option, the reinsurance
contract, which would have entitled Converium to receive 7.5% of Admiral's total
written premium, will cease to be effective from 1st January 2005.
Gen Re is currently AAA rated by Standard & Poor's and Axis Re is currently A
rated by Standard & Poor's.
The terms of the enlarged Gen Re and Axis participation enable AIGL to
anticipate receiving a slightly higher share of profits on ceded business in
2005/6 as a result of the decision to cancel the Converium contract. Under
these new terms, Admiral will continue to receive 100% of the earnings from the
sale of ancillary products and continue to retain 100% ownership of the Group's
customers.
The Axis contract is a proportional quota share contract, with the majority of
premiums being withheld by AIGL against future claims outgoings. The Gen Re
deal is a proportional reinsurance agreement with an excess of loss cap on Gen
Re's exposure in the event that AIGL's loss ratio exceeds 100%.
AIGL expects Converium to be able to meet its financial obligations to AIGL.
However, the combination of the decision to replace Converium on future
programmes and the fact that the 2003/4 Converium contract operates on a 'funds
withheld' basis means that, were any failure to occur, AIGL's exposure would not
be significant.
Commenting on the expanded reinsurance participation of Gen Re and Axis, Henry
Engelhardt, CEO of Admiral, said: 'We are very pleased to welcome Gen Re and
Axis as new reinsurance partners for Admiral for 2005. The addition of these two
major reinsurers, alongside our established long-term co-insurance partner
Munich Re, supports our unique underwriting model.'
David Stevens, COO and Director of Pricing and Claims, said: 'We were encouraged
by the interest expressed by a number of major reinsurers in providing
reinsurance to Admiral, reflecting our ability to deliver attractive and
sustainable underwriting returns going forward.'
ABOUT ADMIRAL
Admiral is a fast growing financial services intermediary with a track record of
profitability. Admiral principally sells private motor insurance and ancillary
products, such as cover for breakdown, roadside assistance and legal expenses.
Admiral markets directly to the public in the UK through its four core brands:
Admiral, elephant.co.uk, Diamond, and Bell Direct.
Admiral's motor insurance is underwritten primarily by third party insurance
providers, with Admiral controlling all pricing and underwriting decisions and
administration. Admiral also retains a proportion (presently 25%, net of quota
share reinsurance) of the private motor underwriting for its own account.
Approximately two-thirds of core profits come from intermediary business. During
the six months to 30 June 2004, fully 50% of core profits originated from the
sale of ancillary products and 17% from profit commissions. Admiral's
underwriting of private motor insurance on its own account contributed the
remaining 33% of core profits.
Admiral has a long record of growing consistently and profitably across the
private motor insurance cycle. Since 2001, core profit has grown at a compound
annual growth rate of 42%. A key part of Admiral's competitiveness is its
superior loss ratio and superior expense ratio compared with the market.
Admiral's earned loss and expense ratios have been lower than the market average
for each year since 2000. Admiral has sustained a three-year average reported
loss ratio of 64% and is currently achieving an expense ratio of 13.6%. These
performances enable it to operate highly profitably, with the combined ratio - a
key measure of profitability expressing losses and expenses as a proportion of
premiums - standing at 77.5% in the first half of 2004.
For further information, please contact:
Admiral 0870 243 2431
Henry Engelhardt
David Stevens
Louisa Scadden
Financial Dynamics 020 7269 7200
Robert Bailhache
Caroline Ledosquet
www.admiralgroup.co.uk
This announcement has been issued by and is the sole responsibility of Admiral
Group plc.
This announcement does not form part of any offer of securities, or constitute a
solicitation of any offer to purchase or subscribe for securities. In
particular, this announcement does not form part of, and is not made in
connection with the recent initial public offering of shares in Admiral Group
plc.
This announcement does not constitute an offer of securities for sale in the
United States of America. Neither this announcement nor any copy of it may be
taken or distributed into the United States of America or distributed or
published, directly or indirectly, in the United States of America. Any failure
to comply with this restriction may constitute a violation of US securities law.
The securities referred to herein have not been and will not be registered under
the US Securities Act of 1933, as amended (the 'Securities Act'), and may not be
offered or sold in the United States or to or for the benefit of US persons
unless they are registered under the Securities Act or pursuant to an available
exemption therefrom. No public offering of securities of Admiral Group plc is
being made in the United States of America or elsewhere.
In connection with the recent initial public offer of shares in Admiral Group
plc, Merrill Lynch may over-allocate or effect transactions to stabilise or
maintain the market price of Admiral Group plc's securities at levels above
those that might otherwise prevail in the open market. However, there is no
obligation on Merrill Lynch to take such action. Such transactions may be
effected on the London Stock Exchange, in over-the-counter markets or otherwise
and shall be carried out in accordance with applicable rules and regulations.
Such transactions, if commenced, may be discontinued at any time.
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