LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” (Excellent) of Lombard International Assurance S.A. (LIA SA) (Luxembourg). Concurrently, AM Best has affirmed the Long-Term ICR of “bbb-” (Good) of LIA Holdings Limited (Lombard International) (United Kingdom), a non-operating holding company. The outlook of these Credit Ratings (ratings) is negative.
The ratings reflect Lombard International’s consolidated balance sheet strength, which AM Best assesses as very strong, as well as the group’s adequate operating performance, neutral business profile and appropriate enterprise risk management. The ratings of LIA SA factor in its strategic importance to Lombard International, and its integration within the group.
Lombard International’s balance sheet strength assessment is underpinned by the strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). The assessment also reflects the group’s liability profile, which AM Best considers to be low risk, as it primarily provides unit-linked products. Moreover, there are no living benefit guarantees and mortality risk is low, as it is largely reinsured with a variety of reinsurers of high credit quality. Partially offsetting factors in the balance sheet strength assessment include the group’s high reliance on soft capital components, primarily the value of in force business, to support its risk-adjusted capitalisation, and high financial leverage. Lombard International has committed to reduce its financial leverage over the short term using the proceeds of the sale of its U.S. and Bermuda operations and internal capital generation. However, there is uncertainty on the timing of the reduction as the sale is pending regulatory approval. Failure to reduce financial leverage and improve interest coverage over the short term will likely lead to a negative rating action.
Lombard International’s operating performance is supported by a steady inflow of fee revenue. AM Best expects the group to continue to produce stable cash flows, driven by solid new business generation and excellent persistency of the existing portfolio.
Lombard International maintains a solid position in its core markets, offering tailored products to high and ultra-high net worth individuals, primarily in Europe. A focus on this client base means that the group is highly susceptible to changes in legislation with respect to domestic and international taxation.
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