Admiral may move underwriting if UK insurers lose EU rights

* Says solvency capital ratio falls to 180 pct

* Shares (Berlin: DI6.BE - news) down as much as 9 pct

* Ireland (Other OTC: IRLD - news) is possible alternative if new base needed (Adds CFO, analyst quotes, details, share movement)

By Noor Zainab Hussain

Aug 17 (Reuters) - Admiral Group Plc (LSE: ADM.L - news) said it could move its European business to Ireland or another country if British insurers lose their right to sell their products across Europe as a consequence of leaving the EU.

Admiral also said on Wednesday that tumbling interest rates following Britain's vote to leave the European Union in June had hit its solvency ratio, sending shares in the insurer down by 8.5 percent to 2062 pence by 0940 GMT.

Insurers are making contingency plans after the Brexit vote left them facing the risk they could lose "passporting" rights that allow UK financial services firms to trade in Europe without the need for locally regulated entities.

"If passporting is withdrawn then Dublin would be one of the places within Europe where we might look to base our European underwriting from," Chief Financial Officer Geraint Jones told Reuters, adding there would be no short-term decision.

Admiral, one of Britain's largest car insurance providers with a market share of over 11 percent, also has operations in Spain, Italy and France.

"There is probably more logic in being based in a place where we already have an infrastructure and an operation," he said.

Dublin is a favoured alternative base to London for insurers due to its proximity and similar regulatory regime, as well as Ireland being an English-speaking country and having low corporate taxes.

BREXIT BITES

The company announced a solvency capital ratio of 180 percent under new European rules, adding that the ratio was 196 percent when calculated on a "volatility adjusted basis". The ratio was 206 percent in 2015.

Solvency II dictates the amount of capital an EU insurer must hold to reduce the risk of insolvency. The lower the ratio, the greater the chances of a company defaulting on its obligations.

The rules require Admiral to calculate periodic payment claims liabilities at a "risk free" interest rate. When interest rates fall, the cost of these liabilities rise.

"What we saw post Brexit was fairly significant falls in risk free interest rates. And so basically lower interest rates means bigger liability valuation and hence less capital and a lower solvency ratio," Jones said.

Analysts expect the lower ratio to reduce its ability to return cash to shareholders.

Admiral has said that it would return between 150 million pounds and 200 million pounds of surplus capital over 2-3 years, subject to uncertainties.

"This is now expected to be 100-150 million pounds because the Solvency II ratio has proven volatile in the wake of UK Leave vote," UBS (LSE: 0QNR.L - news) analysts wrote in a note.

The company reported a 4 percent rise in first-half statutory pretax profit, just below analyst estimates. It said it would pay an interim dividend of 62.9 pence per share, up 23 percent from a year earlier and above a forecast of 59.2 pence. ($1 = 0.7668 pounds) (Reporting by Noor Zainab Hussain in Bengaluru; Editing by Sunil Nair and Keith Weir)