AM Best has reaffirmed the financial strength rating of A- (Excellent) and the long-term issuer credit ratings (Long-Term ICR) of “a-” (Excellent) for Somers Re and its subsidiaries, including Watford Insurance Company Europe, Watford Insurance Company, Watford Specialty Insurance Company, and Axeria IARD.
In addition, the Long-Term ICR of “bbb-” (Good) for Somers Group Holdings, the parent company, was also affirmed. All these ratings have been given a stable outlook, with the agency affirming that the ratings reflect Somers’ robust balance sheet strength, as analyzed by AM Best, along with its satisfactory operating performance, neutral business profile, and suitable enterprise risk management strategies.
According to AM Best, as of the end of 2022, Somers demonstrated a substantial level of risk-adjusted capitalization, according to its Capital Adequacy Ratio (BCAR). Despite being affected by unrealized investment losses in 2022, the group’s capitalization supports its strong balance sheet assessment.
Over the past five years, the group has shown volatile operating returns, with significant fluctuations in realized and unrealized gains and losses. Notably, Somers managed to achieve profitability in three of the last five years (2018-2022).
The company has established itself as a global player in the reinsurance and insurance market, primarily sourcing and underwriting business through agreements with Arch Capital Group Ltd. and its affiliates. These entities also provide essential functions for Somers’ underwriting operations. Historically, the group has concentrated on lower-volatility, medium- to long-tailed lines of business but has recently expanded into higher-volatility, short-tailed lines.
Despite the robust ratings, AM Best noted that negative rating actions could occur if there is further deterioration in Somers’ risk-adjusted capitalization, or if the group faces liquidity issues. A reversal in the trend of improving underwriting performance, which has been evident in declining combined ratios in recent years, could also trigger rating actions.
Conversely, positive rating actions may be considered if the group’s operating performance consistently improves and significant underwriting profits are realized, although this is considered unlikely in the near term.
Unlike Somers Re, some reinsurers have not fared very well in terms of their recent ratings. Recently, Utah-based SILAC Insurance Company (SILAC) had its outlook adjusted from stable to negative by AM Best.
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