A.M. Best Affirms Ratings of Lancashire Insurance Company Limited and Lancashire Holdings Limited

A.M. Best has affirmed the financial strength rating of A (Excellent) and the issuer credit ratings (ICR) of “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 affirmed the ICR of “bbb” and debt ratings of the parent company, Lancashire Holdings Limited (Lancashire Holdings) (Hamilton, Bermuda) (LSE:LRE). The outlook for the FSR is stable, while the outlook for all remaining ratings is positive. (See below for a detailed listing of the debt ratings.)

The ratings 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 strong enterprise risk management framework, which has mandated its conservative operating strategies. This customized risk management framework has produced excellent underwriting results, which has enabled Lancashire to consistently generate return measures at the high end of the 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.

Lancashire's operating activities focus on a specialist approach to writing core accounts as well as 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, 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. With the addition of Cathedral Capital Limited and Kinesis Capital Management Limited, Lancashire's business profile has been enhanced. Another positive aspect is the increase in the organization's scale, which has resulted from these two additions.

Factors that could lead to an upgrading of the ratings would be for Lancashire to continue its long-term, consistently strong operating profitability as well as maintain an excellent risk-adjusted capital level that is commensurate with its ratings. Factors that could lead to a downgrading of the ratings and/or a revised outlook include unfavorable operating profitability trends, outsized underwriting or investment losses and a significant decline in risk-adjusted capital that would not be supportive of the organization’s current rating level.

The following debt ratings have been affirmed:

Lancashire Holdings Limited—
-- “bbb” on $130 million 5.7% senior unsecured notes, due 2022
-- “bbb-” on $130 million 3.7% over LIBOR/EURIBOR subordinated notes, due 2035 ($97 million, €33 million as of December 31, 2013)

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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