AM Best downgrades Allied World’s ICR ratings as casualty profits dip

Rating agency AM Best has downgraded the Long-Term Issuer Credit Ratings (ICR) of Allied World Assurance Company (Bermuda) and its operating affiliates to ‘a’ from ‘a+’.

At the same time, it affirmed its financial strength rating of ‘A’ (Excellent).

The rating agency said the action reflects the erosion in the group’s commercial casualty profitability, which, over the past several years, has been subject to deteriorating loss ratio levels and adverse reserve development patterns.

"The commercial casualty market remains very competitive. While rate increases have been achieved and continue to be pursued, the sufficiency of that action has not yet been demonstrated conclusively," said AM Best.

"Additionally, property losses have impacted underwriting performance over the same time period. While the volatility related to property losses have primarily impacted earnings, the losses in 2017 resulted in a reduction to capital. Changes have been made in the group’s reinsurance structure to mitigate the impact of future catastrophe losses on its capital position," it added.

AM Best said the group’s risk-adjusted capital is supportive of its current loss reserve position, which has shown some variability in recent accident years; premium growth; and catastrophe loss exposure.

Additionally, Allied World benefits from being part of Fairfax Financial Holding’s diversified business platform, decentralised yet collaborative business practices, and fungible and strong capital position.

The group maintains a neutral business profile, the agency said. Over the past few years, the group has reduced its reinsurance premiums in response to competitive market conditions. Growth has continued on the direct casualty business, more than offsetting the decline in the reinsurance segment. While this growth has diversified the group’s exposures, the benefit of the diversification has been limited by competitive market conditions and challenges in achieving adequate rate levels. The group is well-diversified geographically with a global market presence.