Fitch gives Ardonagh ratings boost - but warns of challenges ahead

Ardonagh chief executive David Ross and his management team received a major boost today amid a ratings upgrade from Fitch - but the note also cautioned on the challenges ahead. 

Fitch said Ross and his senior chiefs have shown the pedigree to deliver on their business plans after integrating companies, making acquistions and recruiting more talent. 

“Fitch believes the management team has demonstrated the knowledge and skillset to execute its strategy, risks remain in delivering the plan in a highly competitive insurance and brokerage market,” it said, following Ardonagh’s first quarter results.

The ratings agency lowered the risk of Ardonagh defaulting on its long-term debt to ‘B’ from ‘B-’, with a stable outlook.

It also upgraded its credit facility to BB from BB- and bond debt to B+ from B. 

Ardonagh’s clean up and restoration has been underpinned by shareholders ploughing in at least £680m for acquisitions and credit facilities. 

Ardonagh risks and challenges 

However, Fitch said Ardonagh would remain cash negative this year, and only breakeven in 2019 - but had enough cash on the balance sheet and credit to mitigate the impact.

The MGA had been underperfoming and top line growth would be limited this year. 

”Ardonagh has significantly smaller scale than its publicly rated insurance broker peers and has a less diverse product line.

”While its expertise in niche, high margin product lines and its leading position among UK insurance brokers underpin a sustainable business model, its higher financial risk and underperforming business lines constrain the rating,” it said.

“If Ardonagh executes its business plan, Fitch believes it will be possible for the company to refinance its debt prior to maturity and lower its cost.”