Fitch Ratings has affirmed the ratings of Allied World Assurance
Company Holdings, Ltd (Allied World) as follows:
--Issuer Default Rating (IDR) at 'A';
--Senior debt at 'A-'.
Fitch has also affirmed the 'A+' Insurer Financial Strength
(IFS) ratings of Allied World's property/casualty and reinsurance
subsidiaries. A full list of ratings follows at the end of this
release.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Fitch's affirmation of Allied World's ratings reflects the
company's consistently strong underwriting profitability, low
financial leverage, solid capitalization and well-managed reserve
risk. The ratings also reflect potential volatility from large
catastrophe-related events, recent significant growth rate in
primary premiums offset somewhat by decreases in the reinsurance
portfolio, potential adverse development due to the relatively
large proportion of its reserves derived from longer duration
casualty lines of business, and allocation to higher yielding
alternative investments.
In addition, the ratings reflect Fitch's negative sector outlook
on global reinsurance, as the fundamentals of the reinsurance
sector have deteriorated with declining premium pricing and
weakening of terms and conditions, particularly for property
catastrophe risk. This is leading to consolidation in the
reinsurance sector as companies aim to enhance their relative
competitive positions.
AWH's market position and size/scale is characterized as
'Medium' by Fitch when measured by net written premium and equity.
Allied World maintains a unique portfolio of business lines
relative to its Bermuda peers and includes a mix of primary
insurance and reinsurance business.
Allied World reported 8.8% growth in North American Insurance
gross premiums written (GPW) in the first half of 2015,
particularly in its General Casualty book of business. Increases in
GPW in the Global Markets Insurance segment were largely a result
of the inclusion of premium from the acquisition of the Hong Kong
and Singapore operations of Royal & Sun Alliance Insurance Plc.
(RSA) into Allied World's results at mid-year 2015. Premium
increases were largely offset however with a 13.9% decrease in
reinsurance GPW. Total growth in net premiums written in the first
half of 2015 (1H15) was limited to 3.8%.
Allied World reported a calendar-year combined ratio of 94%
through six-months 2015, following a six-month 2014 ratio of 85.1%
as the company reported catastrophe losses of $25 million related
to the New South Wales storms and $20 million of non-catastrophe
weather and fire related losses in the period. Allied World
reported decreased net earnings of $134 million through six-months
2015, generating an annualized net return on equity of 7.2%.
Allied World's results have benefited from favorable reserve
development that averaged 13.7% of net earned premiums from
2010-2014. Allied World reported $85 million of reserve releases
through the first six months of 2015, representing 7% of net earned
premium.
Fitch views Allied World's capitalization as strong, with
metrics such as GAAP operating (net premiums written-to-total
shareholders' equity) and net leverage ratios of 0.6x and 2.2x as
of year-end 2014, which are at median guidelines for the 'AA'
rating category. Allied World has historically used a conservative
amount of operating leverage relative to (re)insurer peers,
averaging 0.54x in the five years between 2010-2014.
Total shareholders' equity decreased by 4.1% to $3.6 billion at
June 30, 2015, as positive net earnings were offset by $246 million
of share repurchase activity during the first six months of the
year. Allied World uses a moderate amount of financial leverage in
its capital structure. At June 30, 2015, debt securities
represented approximately 18.5% of the company's almost $4.5
billion of capital.
RATING SENSITIVITIES
Key rating triggers that could result in a downgrade
include:
--Deterioration in reinsurance sector fundamentals or
consolidation in the reinsurance landscape that Fitch viewed as
weakening Allied World's competitive position, operating profile or
overall profitability;
--Failure to maintain a multi-year average calendar-year
combined ratio of 100% or better;
--Growth in premiums considerably greater than peers;
--Significant adverse reserve development;
--Material loss of capital that leads to an increase in
underwriting leverage above a 1.0x net written premiums-to-equity
ratio or financial leverage increasing above 25%;
--Catastrophe loss experience that greatly exceeds the company's
probable maximum loss estimates.
Key rating triggers that could lead to an upgrade include:
--Enhanced scale and relative competitive position with
maintenance of current operating performance in the challenging
reinsurance environment;
--Material improvement in key financial metrics (e.g. net
premiums written to equity) to more overcapitalized levels;
--Underwriting results and returns on capital in line with
higher rated property/casualty (re)insurer peers.
FULL LIST OF RATING ACTIONS
Fitch affirms the following ratings with a Stable Outlook:
Allied World Assurance Company Holdings, Ltd
--IDR at 'A';
--$500 million 7.50% senior notes due Aug. 1, 2016 at 'A-';
--$300 million 5.50% senior notes due Nov. 1, 2020 at 'A-'.
Allied World Assurance Company, Ltd
Allied World Assurance Company (U.S.) Inc.
Allied World National Assurance Company
Allied World Insurance Company
--IFS at 'A+'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub. 14 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=988761
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988761
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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Fitch RatingsPrimary AnalystChristopher A. Grimes,
CFADirector+1-312-368-3263Fitch Ratings, Inc.70 W. Madison
StreetChicago, IL 60602orSecondary AnalystBrian C. Schneider, CPA,
CPCU, AReSenior Director+1-312-606-2321orCommittee ChairpersonMark
E. Rouck, CFA, CPASenior Director+1-312-368-2085orMedia
Relations:Alyssa Castelli,
+1-212-908-0540alyssa.castelli@fitchratings.com