Best Revises Allied World, Affiliates ICR Outlook to Positive; Affirms Ratings

October 26, 2011

A.M. Best Co. has revised the outlook to positive from stable and affirmed the issuer credit ratings (ICR) of “a” of Allied World Assurance Company, Ltd and its operating affiliates. Best also affirmed the financial strength rating (FSR) of ‘A ‘(Excellent) of Allied and its affiliates with a stable outlook.

In addition, Best revised the outlook to positive from stable and affirmed the ICR of “bbb” as well as the debt ratings of “bbb” on $500 million 7.50 percent senior unsecured notes due 2016 and on $300 million 5.5 percent senior unsecured notes due 2020 of Bermuda-based Allied World Assurance Company Holdings, Ltd.

Best also has assigned an ICR of “bbb” to the ultimate parent, Allied World Assurance Company Holdings AG, which is based in Switzerland, and “unconditionally and irrevocably guarantees both senior debt issuances of Allied World Holdings Bermuda. The outlook assigned to this rating is positive. All the above companies are domiciled in Bermuda, unless otherwise specified.”

Best described Allied World as a “property/casualty insurer/reinsurer with significant geographic reach. The rating affirmations reflect the company’s diversified mix of business, strong risk-adjusted capitalization and experienced management team. The positive outlook reflects Allied World’s strong operating performance, sound risk management culture and strategic expansions in terms of geography, products and distribution. These positive rating attributes are expected to put the company in a favorable position to successfully execute its business plans. The breadth of Allied World’s operations has been enhanced while the company has delivered strong results.”

As a partial offsetting factor Best cited Allied World’s “casualty orientation, as pricing for this class of business is particularly soft at this stage of the market cycle.” The report also explained that many of “Allied World’s peers have chosen to modify their business mix toward shorter-tail property business. Allied World has chosen a targeted business strategy, while taking steps to hone its cycle management capability.”

However, Best also noted that “Allied World’s continued focus on casualty business has helped to limit its exposure to the recent increase in global catastrophes including the New Zealand earthquakes and the Japanese earthquake and tsunami.

“Allied World appears to have a prudent reserving philosophy, maintaining a significant portion of Incurred But Not Reported reserves. As a result, the company has been able to recognize substantial favorable loss reserve development for several years, which has facilitated strong operating returns through the current soft phase of the casualty market. Accordingly, the revised outlook is long term in nature to allow more recent accident years to mature given the current soft pricing dynamics of the casualty market.”

Best added that any “future shortfall in reserves, combined with a deterioration in investment income resulting from a continuation of lower interest rates,” could cause the rating agency to “reconsider its positive outlook on Allied World. If Allied World can sustain its historical results going forward, the company will have demonstrated that it has built a business model, which is well-established to withstand varying market conditions and support a higher FSR.”

Best summarized the companies affected by the ratings changes as follows:
The FSR of ‘A’ (Excellent) and ICR of “a” have been affirmed for Allied World Assurance Company, Ltd and its following operating affiliates:
— Allied World Assurance Company (U.S.) Inc.
— Allied World National Assurance Company
— Allied World Reinsurance Company
— Allied World Assurance Company (Europe) Limited
— Allied World Assurance Company (Reinsurance) Limited
— Darwin Select Insurance Company
— Darwin National Assurance Company

Source: A.M. Best

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