AM Best Co has lowered the outlook on the ratings of the operating subsidiaries of Bermuda-based American Safety Insurance Holdings Ltd (ASI) to negative from stable.The ratings agency said the change reflected “unfavourable underwriting results reported in 2011 by the ASI subsidiaries and AM Best’s expectation of similar results for 2012”.According to AM Best, ASI’s results have been impacted by weather related losses and unfavourable development in prior year loss reserves, primarily for business that has been placed in run-off.The revised outlook also considers the inherent risks involved in ASI’s anticipated build-out of new and existing lines of business (particularly its excess and surplus lines and reinsurance divisions) through the expansion into new geographic territories, growth and expansion of its surety business associated with the recent acquisition of the Bluestone Agency in 2012 and the melding of new underwriting teams into ASI’s culture.“Furthermore, this revised outlook takes into consideration the organisation’s adverse prior year loss reserve development reported in 2011, and additional reserve strengthening in 2012, ASI’s recent de-emphasis on certain poorly performing reinsurance and programme businesses, competitive headwinds, elements of execution risk associated with ASI’s diversification strategy and the challenges facing management to improve underwriting results over the near term,” said AM Best in a press release.Despite the revised outlook, said AM Best, the ratings reflect the adequate consolidated capitalisation of the ASI subsidiaries, their solid, overall operating results over the long term and the effective management of their insurance operations.The ratings also recognise ASI’s core underwriting expertise in its niche markets, with customised risk management programmes and loss control services.“While ASI’s overall risk-adjusted capitalisation remains supportive of the current ratings (driven by its manageable underwriting leverage and modest investment leverage) further deterioration in operating profitability combined with the possibility of additional share repurchases could have a limiting, or even negative impact on the organisation’s capital strength,” said AM Best.