The outlook for Lancashire Insurance Company Ltd. and Lancashire Insurance Company (UK) Ltd. has been revised to positive from stable by AM Best Co.
Lancashire has also been affirmed the financial strength rating of A- (excellent) and issuer credit ratings (ICR) of "a-".
Concurrently, Best has revised the outlook to positive from stable and affirmed the ICR of "bbb-" and debt rating of "bb+" on $130 million subordinated notes, due in December 2035 of Lancashire Holdings Ltd.
These ratings reflect Lancashire's excellent risk-adjusted capitalisation, very strong operating results since inception and the financial flexibility afforded to the group by the listing of Lancashire Holdings' shares on the London Stock Exchange, said the ratings agency. Additionally, the ratings reflect the group's very strong risk management framework, which has mandated its conservative operating strategies. Best said that such a customised risk management framework has produced excellent underwriting results, which have enabled the company to consistently generate return measures at the high end of the peer group.
Partially offsetting these positive attributes was Lancashire's exposure to low frequency, high severity events due to its targeted lines of business.
The outlook is reflective of Best's expectation that the group will continue to produce favorable long-term operating results and maintain excellent risk-adjusted capitalisation commensurate with its ratings.
The ratings agency said that Lancashire's operating activities focus on a specialist approach targeting dislocated classes of business, while its business plan encompassed a diversified mix of business, both geographically and by class, including direct short-tail property insurance and reinsurance including energy and terrorism, as well as a small portfolio of third-party AV52 aviation liability and marine risks, including hull and protection and indemnity coverage.
To date, Lancashire has been successful in adhering to and executing its initial business plan by attaining very favourable underwriting margins and maintaining a disciplined underwriting approach in targeted businesses and markets despite very challenging operating conditions, said Best. Additionally, Lancashire was proactive in taking steps to minimise adverse affects from the credit crisis in the US that began in 2007.
Best is also of the opinion that Lancashire's risk management capability was appropriate to protect its capital base from a loss outside of its planned risk tolerance.
