Best Affirms Lancashire’s ‘A’ Ratings; Stable Outlook

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Bermuda-based Lancashire Insurance Company Limited and UK-based Lancashire Insurance Company (UK) Limited, collectively known as Lancashire.

Best also affirmed the ICR of “bbb” and debt rating of bbb-“on $130.8 million 3.7 percent above LIBOR/Euribor subordinated notes, due in 2035 of Lancashire Holdings Limited. The outlook for all ratings is stable.

The ratings apply to Lancashire’s “excellent risk-adjusted capitalization, very strong operating results since inception, experienced management team and the financial flexibility afforded to the group by the listing of Lancashire Holdings’ shares on the London Stock Exchange,” Best explained.

In addition the ratings reflect Lancashire’s “strong enterprise risk management framework, which has mandated its conservative operating strategies. This customized risk management framework has produced excellent underwriting results, which has enabled the company to consistently generate return measures at the high end of its peer group. Lancashire’s success is attributable to adhering to and executing on its initial business plan.”

As a partial offsetting factor Best cited “Lancashire’s exposure to low frequency, high severity events due to the targeted lines of its business.”

Best explained that “Lancashire’s operating activities focus on a specialist approach writing core accounts but also targeting dislocated classes of business. The business plan encompasses a diversified mix of business, both geographically and by class, including direct short-tail property insurance and reinsurance, including energy and terrorism, as well as a small portfolio of third-party AV52 aviation liability and marine risks, which includes hull and protection and indemnity coverage.

“Rating factors that could lead to Lancashire’s ratings being upgraded would be the continuation of a long-term, consistently strong operating profitability and maintaining excellent risk-adjusted capital levels, which would be commensurate with its ratings.

“The rating factors that could lead to a negative outlook and/or a downgrading of the ratings include unfavorable operating profitability trends, outsized insurance or investment losses and a significant decline in the company’s risk-adjusted capital that would not be supportive of the current rating level.”

Source: A.M. Best