AM Best upgrades Lancashire ratings

26-10-2018

AM Best has upgraded the long-term issuer credit ratings of Lancashire Insurance Company and its affiliate, Lancashire Insurance Company (UK) to “a+” from “a” and affirmed the financial strength rating of A (Excellent).

Additionally, AM Best has upgraded the Long-Term ICR to “bbb+” from “bbb” and the long-term issue credit ratings of the parent company, Lancashire Holdings. The outlook of these ratings remains stable.

According to AM Best, the ratings reflect Lancashire’s balance sheet strength, which the rating agency categorises as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

Lancashire’s business profile of neutral is comparable with other players in its peer group. Following management changes and its acquisition of Cathedral Capital in 2013, AM Best took a cautious view of Lancashire’s business profile. However, the company has continued to successfully manage the cycle and maintain underwriting discipline while carefully expanding into new lines of business. Lancashire is a specialty underwriter with a good degree of geographic and product line diversification as the company’s offerings includes primary insurance, reinsurance and retrocessional coverages on a global basis through traditional capacity, Lloyd’s and its Kinesis platform.

AM Best added that Lancashire’s levels of risk-adjusted capitalisation remain strongest even under stress scenarios. Balance sheet strength is further enhanced by the group’s financial flexibility and history of consistent favorable reserve development, as well as its relatively modest underwriting leverage. Financial leverage and coverage metrics continue to be within tolerances for the group’s rating level. Also reflected in the ratings are Lancashire’s historically strong overall returns driven by excellent underwriting results and complimented by investment income and, to a lesser extent, fee income. The group’s five-year average return on equity and combined ratio through year-end 2017 consistently have placed Lancashire at the high end of its peer group, particularly in non-catastrophe affected years. However, as demonstrated by recent events, Lancashire maintains an elevated risk profile and primarily writes lines of business that have significant exposures to catastrophe activity.

In terms of ERM, Lancashire’s risk management function is embedded and customised across the entire organisation, which is necessary given the group’s elevated risk profile. The group’s historically strong underwriting results are demonstrative of the group’s risk management capabilities.

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