OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a+” of Lancashire Insurance Company Limited (Hamilton, Bermuda) and Lancashire Insurance Company (UK) Limited (United Kingdom) (collectively referred to as Lancashire). Additionally, AM Best has affirmed the Long-Term ICR of “bbb+” and the Long-Term Issue Credit Ratings (Long-Term IR) of the parent company, Lancashire Holdings Limited (Lancashire Holdings) (Hamilton, Bermuda) [LSE: LRE]. The outlook of these Credit Ratings (rating) remains stable. (See below for a detailed listing of the Long-Term IRs).
The ratings reflect Lancashire’s balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Lancashire’s level of risk-adjusted capitalization remains strongest even under stress scenarios. Balance sheet strength is enhanced further 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 fee income. The group’s five-year average return on equity and combined ratio through year-end 2018 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. That said, Lancashire continues to successfully manage the cycle and maintain underwriting discipline while carefully expanding into new lines of business, as evident by its underwriting profit in 2018, while some of its peers experienced a second straight year of underwriting losses. Lancashire is a specialty underwriter with a good degree of geographic and product line diversification, as the company’s offerings include primary insurance, reinsurance and retrocessional coverages on a global basis through traditional capacity, Lloyd’s and its Kinesis platform.
In terms of ERM, Lancashire’s risk management function is embedded and customized across the entire organization, 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.
The following Long-Term IRs have been affirmed with a stable outlook:
Lancashire Holdings Limited—
-- “bbb+” on $130 million 5.7% senior unsecured notes, due 2022
-- “bbb” on $97 million 3.7% over LIBOR subordinated notes, due 2035
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