Best Revises Outlook on Lancashire to Positive; Affirms Ratings

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

Best has also revised the outlook to positive from stable and affirmed the ICR of “bbb-” and debt rating of “bb+” on $130 million subordinated notes, due December 2035 of Lancashire Holdings Limited.

Best said that these ratings reflect “Lancashire’s excellent risk-adjusted capitalization, very strong operating results since inception 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 very strong risk management framework, which has mandated its conservative operating strategies. This customized risk management framework has produced excellent underwriting results, which have enabled the company to consistently generate return measures at the high end of the peer group.”

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

The outlook, Said Best, reflects its “expectation that the group will continue to produce favorable long-term operating results and maintain excellent risk-adjusted capitalization commensurate with its ratings.

“Lancashire’s operating activities focus on a specialist approach 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, including hull and protection and indemnity coverage.”

Best also pointed out that to date, Lancashire has “been successful in adhering to and executing its initial business plan by attaining very favorable underwriting margins and maintaining a disciplined underwriting approach in targeted businesses and markets despite very challenging operating conditions. Additionally, Lancashire was proactive in taking steps to minimize adverse affects from the credit crisis in the United States that began in 2007.”

Best said it is of the opinion that “Lancashire’s risk management capability is appropriate to protect its capital base from a loss outside of its planned risk tolerance.”

Source: A.M. Best