Admiral Inks Reinsurance Contracts to Grow US Business

U.K. insurer Admiral Group said it's signed new reinsurance contracts with an eye to expand Elephant Insurance, its new automobile insurance operation in the United States.

Cardiff, Wales-based Admiral said Munich Re and Hannover Re have both entered into quota-share reinsurance contracts with Elephant from Jan. 1, 2010. Munich Re and Hannover Re will each take one third of the U.S. risks while Admiral retains one third. The Hannover Re contract is for up to 10 years while the Munich Re agreement is for up to 15 years. Both agreements include break clauses at earlier dates, but further details are confidential, the company said in a statement.

Attempts to reach Admiral for additional comment were not immediately successful.

According to Elephant's Web site, the Richmond, Va.-based company began writing auto insurance in Virginia last fall. It's an Internet-based, direct-to-consumer auto insurance company.

Admiral also said it extended long-term coinsurance and reinsurance arrangements with Munich Re for its U.K., Spanish and Italian businesses, while the existing agreement for the German business remains in place.

In Europe, Admiral extended its reinsurance agreements with Munich Re in both Spain and Italy to a total of 15 years. Both agreements have also been revised to include a stronger alignment of long-term interests and higher profit commissions for Admiral if results are very positive.

In the United Kingdom, Admiral has extended its current agreement with Munich Re for two more years to at least the end of 2016. Munich Re will retain 40% of Admiral's U.K. risks for these additional years. Admiral has committed to retain at least 25% for the duration of this agreement while the allocation of the balance is at Admiral's discretion.

The deals will help Admiral perpetuate its model "that minimizes risk and consistently produces a high return on capital," Admiral Chief Executive Henry Engelhardt said in a statement. He said it's in "our shareholders' best interest to reduce our risk, particularly in the early development stage of a business, in return for sacrificing some of the profit down the road. This helps us to couple good growth with solid dividends."

Admiral Insurance Co. writes auto insurance, with about 70% of its business coming from the United Kingdom, the rest from other parts of Europe, according to BestLink.

Munich Re currently has a Best's Financial Strength Rating of A+ (Superior) and Hannover Re has a Best's Financial Strength Rating of A (Excellent).

(By Meg Green, senior associate editor, BestWeek: [email protected])