A.M. Best Upgrades Ratings of Lancashire Insurance Company Limited

A.M. Best Co. has upgraded the financial strength rating to A (Excellent) from A- (Excellent) and issuer credit ratings (ICR) to "a” from "a-” of Lancashire Insurance Company Limited (Hamilton, Bermuda) and Lancashire Insurance Company (UK) Limited (United Kingdom) (collectively known as Lancashire). Additionally, A.M. Best has upgraded the ICR to "bbb” from "bbb-” and debt rating to bbb-” from "bb+” on $130.8 million 3.7% subordinated notes, due in 2035 of Lancashire Holdings Limited (Lancashire Holdings) (Hamilton, Bermuda). (LSE: LRE). The outlook for all ratings has been revised to stable from positive.

The rating upgrades reflect Lancashire’s excellent risk-adjusted capitalization, very strong operating results since inception, experienced management team and the financial flexibility afforded to the group by the listing of Lancashire Holdings’ shares on the London Stock Exchange. Additionally, the ratings reflect the group’s very strong risk management framework, which has mandated its conservative operating strategies. This customized risk management framework has produced excellent underwriting results, which have enabled Lancashire to consistently generate return measures at the high end of its peer group.

Partially offsetting these positive attributes is the company’s exposure to low frequency, high severity events due to its targeted lines of business.

The upgrades consider all of the aforementioned attributes in addition to Lancashire’s success by adhering to and executing on its initial business plan. The expectation is that the group will continue to produce favorable long-term operating results and maintain excellent risk-adjusted capitalization commensurate with its ratings.

Lancashire’s operating activities focus on a specialist approach targeting dislocated classes of business. The business plan encompasses 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.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies”; "Understanding Universal BCAR”; Natural Catastrophe Stress Test Methodology”; "Assessing Country Risk”; "Rating Members of Insurance Groups”; and "A.M. Best’s Ratings & the Treatment of Debt.” Methodologies can be found at www.ambest.com/ratings/methodology.

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