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    ADM   GB00B02J6398

ADMIRAL GROUP PLC

(ADM)
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UK insurers left with no place to hide on solvency ratios

12/04/2015 | 07:04am EDT

LONDON (Reuters) - Britain's leading insurers find out on Saturday if their plans to meet new EU rules on capital have been approved, an announcement that will raise pressure on them to reassure markets on their ability to pay future dividends.

The European Union's "Solvency II" rules allow insurers to use in-house models from January to calculate how much capital they must hold to cover policyholder commitments.

Around 1200 GMT on Saturday, the Bank of England will name about 20 insurers whose models it has approved. Without the green light from a national regulator, an insurer must use the "standard formula", which typically ties up a higher amount of expensive capital.

Big insurers like Aviva (>> Aviva plc), Prudential (>> Prudential plc) and the Lloyd's of London insurance market are expected to get approval.

The central bank won't be naming those it rejected or firms that decided to withdraw their applications once approval appeared unlikely.

Once their plans have been approved, firms will find it harder to stay silent on the "solvency capital requirement" or SCR ratio the models calculate.

This ratio is becoming the litmus test for markets and while a ratio of 100 percent means that an insurer meets the requirements, investors will be looking for a much higher number as reassurance that a company can continue to pay dividends.

Just how much of a buffer above the minimum will satisfy regulators and markets is still unclear but 130-150 percent is seen by analysts as a floor.

"We believe investors will be comfortable with ratios of 180 percent for (UK) life companies and 150 percent for non-life companies," RBC analysts said in a research note.

France's Axa (>> AXA) said on Thursday it had approval for its model from French regulators and was targeting a solvency ratio of 170-230 percent, after reporting a ratio of 212 percent for end-September.

Having such an elevated ratio is allowing the firm to pay bigger dividends, sending its shares higher on Friday.

On the other hand, Dutch insurer Delta Lloyd (>> DELTA LLOYD) this week ditched its model and opted for the standard formula. It now plans to raise 1 billion euros (£720.3 million) in fresh capital to raise its SCR from 136 percent to between 175 and 180 percent.

No British insurer has disclosed its SCR yet -- they won't need to until they begin to report financial earnings in 2016 -- but investors may not want to wait that long.

Prudential holds an investor day on Jan 19 and has said it will give solvency details at that time, putting pressure on peers like Aviva to follow suit sooner rather than later.

"We believe UK life insurers are on track to report relatively strong Solvency II capital levels, as they announced substantial interim dividend increases with their first half results," ratings agency Fitch said.

Investors have shied away from the insurance sector due to worry over capital raising like at Delta Lloyd, Barrie Cornes, an insurance analyst at Panmure Gordon & Co said.

"We think this will prove to be unfounded for larger insurers but that surplus capital will reduce across the board, but not to the point where it might impact dividends," Cornes said.

(Reporting by Huw Jones and Carolyn Cohn; Editing by Keith Weir)

By Huw Jones and Carolyn Cohn


ę Reuters 2015
Stocks mentioned in the article
ChangeLast1st jan.
ADMIRAL GROUP PLC 0.72% 3376 Delayed Quote.15.35%
AVIVA PLC 1.39% 393.1 Delayed Quote.19.22%
AXA 0.41% 21.915 Real-time Quote.11.85%
DIRECT LINE INSURANCE GROUP PLC -0.84% 296.7 Delayed Quote.-6.21%
LEGAL & GENERAL PLC 1.37% 265.8 Delayed Quote.-1.50%
PRUDENTIAL PLC 2.42% 1376.5 Delayed Quote.-0.37%
RSA INSURANCE GROUP 0.00% 684.2 Delayed Quote.1.00%
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Financials
Sales 2021 807 M 1 127 M 1 127 M
Net income 2021 743 M 1 037 M 1 037 M
Net Debt 2021 175 M 245 M 245 M
P/E ratio 2021 13,6x
Yield 2021 8,01%
Capitalization 9 763 M 13 637 M 13 632 M
EV / Sales 2021 12,3x
EV / Sales 2022 12,3x
Nbr of Employees 11 445
Free-Float 69,6%
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Mean consensus HOLD
Number of Analysts 16
Last Close Price 33,76 GBX
Average target price 2 846,38 GBX
Spread / Average Target 8 331%
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Managers and Directors
Milena Mondini de Focatiis Chief Executive Officer & Executive Director
Geraint Allan Jones Chief Financial Officer & Executive Director
Annette Elizabeth Court Non-Executive Chairman
Charlotte Bennett Head-Information Technology
Matt Wintle Chief Information Officer
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