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) is 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 supported by the group’s financial flexibility and history of prudent reserving, 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 performance, driven by excellent underwriting results and complemented by investment income and fee income. The group’s five-year average return on equity and combined ratio through year-end 2019 continues to place Lancashire at the high end of its peer group, particularly in non-catastrophe affected years. Lancashire maintains an elevated risk profile, as it writes lines of business that have significant exposures to catastrophe activity. However, Lancashire continues to manage the cycle successfully and maintain underwriting discipline while carefully expanding into new lines of business, as is evident by its underwriting profit in 2019, while some of its peers experienced a third 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. The company also has shown prudence on its COVID-19 loss estimates, consistent with its historical reserving practices.
In terms of ERM, Lancashire’s risk management function is embedded and customized across the entire organization, in line with the group’s elevated risk profile. The group’s historically strong underwriting results are demonstrative of its risk management capabilities.
Lancashire indicated that it reserved for net claims and claim expenses associated with the COVID-19 pandemic, which primarily represents incurred but not reported provisions related to potential business interruption claims in its property classes. Currently, AM Best considers these losses manageable based on the analysis performed by Lancashire management and the company’s limited profile in classes that are expected to be most impacted.
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
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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