(Alliance News) - Moody's Investors Service on Thursday affirmed its A3 insurance rating for Bermuda-based insurance company Lancashire Holdings Ltd, as well as its stable outlook.
The credit agency said its current rating reflects the group's good regulatory capitalisation, well-developed risk management framework and its conservative investment portfolio.
However, Moody's did point out that Lancashire's strength was held back by its high exposure to natural catastrophe risk, leading to its potential for earnings volatility.
In February, Lancashire swung to a pretax loss of USD56.8 million in 2021 from a profit of USD5.9 million the year before, due to the negative impact of the winter storm Uri and hurricane Ida in the US, European storms and floods, and tornadoes in the midwest of the US. It had already warned of a heavy loss due to these natural catastrophe events in October.
Nonetheless, the insurance firm's gross written premiums increased by 50% to USD1.23 billion from USD814.1 million the year before. Lancashire attributed this to the long-term build-out of its franchise, its expansion into a number of new classes of business and the addition of three new teams.
"Lancashire has increased its exposure to natural catastrophes relative to shareholders' equity. However, based on gross written premiums, the group's property catastrophe business now represents 29% compared with 40% of 2017 premiums. Moody's expects that as the group continues to expand into non-property catastrophe lines, such as casualty reinsurance and speciality lines, the group's earnings and capital will be better protected from above budget natural catastrophe losses or other underwriting shocks," Moody's stated.
As for the company's stable outlook, Moody's said it reflects the agency's expectation that Lancashire will maintain its healthy regulatory capitalisation while generating solid earnings through the continued diversification of its business.
"While Moody's expects the group to continue to actively manage its capital base and maintain relatively high natural catastrophe exposures, the stable outlook is predicated on total leverage not materially exceeding 30% on a sustainable basis," Moody's continued.
Shares in Lancashire Holdings closed up 0.4% at 485.95 pence on Thursday in London.
By Dayo Laniyan; dayolaniyan@alliancenews.com
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Lancashire Holdings (LRE)