Best Revises Lancashire’s ICR to Positive; Affirms Ratings

A.M. Best Co. has revised the outlook to positive from stable and affirmed the issuer credit ratings (ICR) of “a” of Bermuda-based Lancashire Insurance Company Limited and Lancashire Insurance Company (UK) Limited. Best has also affirmed Lancashire’s financial strength rating of ‘A’ (Excellent) with a stable outlook.

In a related move Best revised the outlook to positive from stable and affirmed the ICR of “bbb” and debt ratings of the parent company, Bermuda-based Lancashire Holdings Limited.

Best said the ratings reflect Lancashire” “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.

“Additionally, the ratings reflect the group’s strong enterprise risk management (ERM) framework, which has mandated its conservative operating strategies. This customized ERM framework has produced excellent underwriting results, which has enabled Lancashire to consistently generate return measures at the high end of its peer group. Lancashire’s success is attributable to its adhering to and executing on its initial business plan. Partially offsetting these positive attributes is the company’s exposure to low frequency, high severity events due to its targeted lines of business.”

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

“Factors that could lead to rating upgrades would be the continuation of Lancashire’s long-term, consistently strong operating profitability and maintaining excellent risk-adjusted capital levels commensurate with its ratings.

“The rating factors that could lead to a negative outlook or rating downgrades 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 its current rating level.”

The following debt ratings have been affirmed:
Lancashire Holdings Limited—
— “bbb” on $130 million 5.7 percent senior unsecured notes, due 2022
— “bbb-” on $130.8 million 3.7 percent subordinated notes, due 2035

Source: A.M. Best