CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of Allied World Assurance Company Holdings, Ltd.'s (Allied World) as follows:
--Issuer Default Rating (IDR) at 'A';
--Senior debt at 'A-'.
Fitch has also affirmed the 'A+' Insurer Financial Strength (IFS) ratings of Allied World's property/casualty and reinsurance subsidiaries. A full list of ratings follows at the end of this release.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Fitch's affirmation of Allied World's ratings reflects the company's consistently strong underwriting profitability, low financial leverage, solid capitalization and well-managed reserve risk. The ratings also reflect potential volatility from large catastrophe-related events, recent significant growth rate in premiums, potential adverse development due to the relatively large proportion of its reserves derived from longer duration casualty lines of business, and increased allocation to higher yielding alternative investments.
Allied World has experienced sizable recent premium growth greater than the market and most peers, with net written premiums up 11.0% in the first quarter of 2014, following a 15.4% increase for full year 2013. Fitch cautions that such rapid growth can create additional risks in underwriting quality and pricing adequacy on new business, especially during a period of market competitiveness. The company grew across each of its three major reporting segments in 2013, benefiting from rate improvement, particularly on U.S. insurance and global reinsurance lines, as well as from strong retention across all segments.
Allied World reported a strong calendar-year combined ratio of 79.9% for first-quarter 2014, following up a full year 2013 ratio of 86.2%. Allied World reported net earnings of $418 million in 2013, generating an annual net return on equity of 12.2%.
Allied World has a history of conservative reserving practices and has benefited from an average of 15.6 percentage points on the combined ratio of favorable reserve development during the period 2009 and 2013. Allied World reported $180 million of reserve releases in 2013, representing 9.0% of full-year net earned premium.
Fitch views Allied World's capitalization as strong. Total shareholders' equity increased by 2.8% to $3.6 billion at March 31, 2014, led by positive net earnings, offset somewhat by $68.7 million of share repurchase activity during the first quarter of the year. Allied World uses a moderate amount of financial leverage in its capital structure. At March 31, 2014, debt securities represented approximately 18.5% of the company's more than $4.3 billion of capital.
Fitch believes that Allied World uses a conservative amount of operating leverage relative to (re)insurer peers, with net premiums written-to-total shareholders' equity averaging 0.50x in the five years between 2009 - 2013.
The company generates the vast majority of its earned premium through primary commercial liability lines business, both U.S. and international, with commercial reinsurance business representing approximately one third of the company's premium allocation. Allied World also writes property business and is exposed to the effects of industry-wide catastrophe losses, but to a lesser extent than its Bermuda peers.
Key rating triggers that could result in a downgrade include a material loss of capital, calendar-year combined ratio that exceeds 100%, continued growth in premiums considerably greater than peers, significant adverse reserve development, increases in underwriting leverage above a 1.0x net written premiums-to-equity ratio, financial leverage increasing above 25%, and catastrophe loss experience that greatly exceeds the company's probable maximum loss estimates.
While a near-term upgrade in ratings is unlikely, key rating triggers that could generate longer term upward rating pressure include continued favorable underwriting results in line with higher rated property/casualty (re)insurer peers; material improvement in key financial metrics (e.g. net premiums written to equity) to more overcapitalized levels; and enhanced competitive positioning while maintaining strong profitability with low earnings volatility.
Fitch affirms the following ratings with a Stable Outlook:
Allied World Assurance Company Holdings, Ltd.
--IDR at 'A';
--$500 million 7.50% senior notes due Aug. 1, 2016 at 'A-';
--$300 million 5.50% senior notes due Nov. 1, 2020 at 'A-'.
Allied World Assurance Company, Ltd.
Allied World Assurance Company (U.S.) Inc.
Allied World National Assurance Company
Allied World Insurance Company
--IFS at 'A+'.
Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process other than through the medium of its public disclosure.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Nov. 2013)
Applicable Criteria and Related Research:
Insurance Rating Methodology