Global credit rating agency AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICR of “a+” (Excellent) of Lancashire Holdings Limited and subsidiaries.
According to the announcement, these ratings reflect the balance sheet strength of the Bermuda-based insurance company – which AM Best assesses as strongest – as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The rating agency also noted that Lancashire maintains the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR).
The assessment of balance sheet strength is supported by the group’s financial flexibility and history of prudent reserving, in addition to the strongest level of risk-adjusted capitalization.
Reflected in the ratings is also Lancashire’s historically strong overall performance, AM Best added, which is driven by underwriting results in non-catastrophe-affected years and complemented by investment income and fee income.
However, the rating agency warned, the Long-Term ICR negative outlook reflects the trend in outsized volatility in Lancashire’s operating performance results relative to its current assessment composite.
AM Best expects these steps will take time to translate to results even though management has taken steps to mitigate this volatility.
Additionally, the rating agency also expects that over the near term, the group’s results will likely continue to display heightened volatility relative to the composite during active catastrophe years.