Overview
- Non-life insurer Legal & General Insurance Ltd. was completely acquired by Allianz on Dec. 31, 2019, and renamed Fairmead Insurance Ltd.
- We expect Fairmead will become an integrated, meaningful part of Allianz' business operations in the U.K. non-life market, similar to Liverpool Victoria General Insurance Group (LVGIG) and Allianz UK. This leads us to regard Fairmead as highly strategic to the Allianz group.
- We are therefore assigning Fairmead our final 'AA-' ratings.
- The stable outlook points to our expectation that Fairmead will be fully merged into LVGIG, and that Allianz group will remain committed to its non-life operations in the U.K.
Rating Action
On Jan. 23, 2020, S&P Global Ratings assigned its 'AA-' issuer credit and financial strength ratings to Fairmead Insurance Ltd. The outlook is stable.
Rationale
We believe that Fairmead will merge into Allianz group's operations in the U.K. non-life insurance market over the coming two years. Although small in size, Fairmead has access to new distribution channels (e.g. partnerships with building societies and independent financial advisers) and widens Allianz UK's customer base, enhancing the group's overarching position in the U.K. non-life market.
We expect that, within one to two years, Fairmead's new and renewed business will be transferred into LVGIG, and Fairmead will issue this business under the Liverpool Victoria (LV) brand instead of the L&G brand. Although Allianz typically uses its Allianz brand globally, we acknowledge that the LV brand is well established in the U.K. Fairmead brings a historically strong presence in the U.K. home insurance market to Allianz' suite of U.K. general insurance and will continue to operate out of the existing Birmingham site. Although Fairmead's operating performance has lagged the market in recent years, the company exhibits strong profit characteristics, particularly on the loss ratio. We expect Fairmead's operating performance will improve once the company can leverage the scale and cost advantage of being part of a larger U.K.-based group.
This acquisition highlights Allianz' statement of intent to commit to the U.K. market. These acquisitions increase the market share of Allianz' U.K. operations to about 9%, making the company No. 2, only behind Aviva.
The ratings are line with the preliminary ratings we assigned on Dec. 18, 2019 (see "Legal & General Insurance Ltd. Rated Preliminary 'AA-' On Integration With Allianz' U.K. Operations; Outlook Stable," published on RatingsDirect).
Outlook
Our stable outlook reflects our expectation that Fairmead will be fully merged into LVGIG and part of Allianz UK, and that the Allianz group (AA/Stable/A-1+) will remain committed to its non-life operations in the U.K. The outlook also mirrors the stable outlook on Allianz group's core operating entities.
Downside scenario
We could take a negative rating action on Fairmead over the next one to two years if the integration, transferring of business, and rebranding of Fairmead significantly deviates from our base-case assumptions. We could also downgrade Fairmead if the Allianz group shows materially reduced strategic interest in the U.K. non-life market. Furthermore, a downgrade could occur if we lower the ratings on Allianz group's core operating entities.
Upside scenario
At this stage, we see an upgrade over the next years as remote given the rather small size of Fairmead relative to the Allianz group. We could upgrade Fairmead, however, if we upgrade the group's core operating entities.
Related Criteria
- General Criteria: Group Rating Methodology, July 1, 2019
- General Criteria: Hybrid Capital: Methodology And Assumptions, July 1, 2019
- Criteria | Insurance | General: Insurers Rating Methodology, July 1, 2019
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- General Criteria: Principles For Rating Debt Issues Based On Imputed Promises, Dec. 19, 2014
- Criteria | Insurance | General: A New Level Of Enterprise Risk Management Analysis: Methodology For Assessing Insurers' Economic Capital Models, Jan. 24, 2011
- Criteria | Insurance | General: Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010
- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
Ratings List
| New Rating | |
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| To | |
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Fairmead Insurance Ltd. |
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| Issuer Credit Rating | AA-/Stable/-- |
| Financial Strength Rating | AA-/Stable/-- |
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. A description of each of S&P Global Ratings' rating categories is contained in "S&P Global Ratings Definitions" at https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352 Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.
| Primary Credit Analyst: | Sebastian Dany, Frankfurt (49) 69-33-999-238; sebastian.dany@spglobal.com |
| Secondary Contact: | Volker Kudszus, Frankfurt (49) 69-33-999-192; volker.kudszus@spglobal.com |
| Additional Contact: | Insurance Ratings Europe; insurance_interactive_europe@spglobal.com |
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