A.M. Best Downgrades Ratings of Western World Insurance Group’s Members

A.M. Best has downgraded the financial strength rating (FSR) to A (Excellent) from A+ (Superior) and the issuer credit ratings (ICR) to “a+” from “aa-” of the pooled members of Western World Insurance Group (Western World) (Keene, NH). Western World is owned by Validus Holdings Ltd. (Validus) (Hamilton, Bermuda) [NYSE:VR]. Validus completed its acquisition of Western World on Oct. 2, 2014. Validus’ flagship company is Validus Reinsurance Ltd., which maintains an FSR of A (Excellent) and an ICR of “a.” The outlook for all ratings is stable. (See below for a detailed listing of the companies.)

While recognizing the additional financial flexibility and the potential benefits afforded to Western World by being part of a larger, publicly traded Bermuda-based global (re)insurance organization, these rating actions are largely based on the deterioration of Western World’s underwriting and operating results over the last five years. Although still profitable, Western World’s combined ratios have been consistently above 100% during his time frame and are not in line with A.M. Best’s expectations of companies at the superior rating level. In addition, net income levels have trended downward and have been heavily supported by net investment income in recent years. This deterioration has been driven in part by underperforming lines and high expense ratios. Management has been addressing these issues through corrective actions, but these will take some time to fully come to fruition. These actions carry execution risk as well.

Despite the downgrades, Western World maintains a strong level of absolute and risk-adjusted capitalization. Western World specializes in underwriting a variety of specialty products, primarily on a surplus lines basis, consisting of general liability and professional liability coverages. In addition, Western World maintains a strong leadership position in the U.S. excess and surplus lines sector.

Post-acquisition by Validus, Western World’s current management team has largely remained intact, and Western World will continue to operate as a separate entity under Validus. From a strategic standpoint, this should allow Validus to enhance and expand its business profile by providing a U.S. specialty commercial insurance distribution platform.

The FSR of A+ (Superior) has been downgraded to A (Excellent) and the ICRs have been downgraded to “a+” from “aa-” for the following pooled members of Western World Insurance Group:

• Western World Insurance Company
• Stratford Insurance Company
• Tudor Insurance Company

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.

Key insurance criteria reports utilized:

• Catastrophe Analysis in A.M. Best Ratings
• Rating Members of Insurance Groups
• Risk Management and the Rating Process for Insurance Companies
• Understanding BCAR for Property/Casualty Insurers

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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