TEXT-Fitch rates Allied World Assurance senior debt 'A-'
Sept 21 - Fitch Ratings has assigned ratings to Allied World Assurance Company Holdings, Ltd. (Allied World) as follows: --Issuer Default Rating (IDR) 'A'; --Senior debt 'A-'. Fitch has also assigned an 'A+' Insurer Financial Strength (IFS) rating to Allied World's property/casualty and reinsurance subsidiaries. A full rating list is shown below. The Rating Outlook is Stable. Fitch's rating rationale for the assignment of Allied World's rating reflects the company's history of strong underwriting results, solid level of capitalization, robust reserve position and high-quality investment portfolio. Allied World reported an 85.2% combined ratio in the first six months of 2012, which is in line with the company's strong five-year average combined ratio of 84.5%, but down from 109.6% posted for the first six months of 2011. Results in 2012 have improved largely due to below historical-average levels of catastrophe losses after results in 2011 were materially impacted by unusually large global catastrophe losses. The company generates the vast majority of its earned premium through primary commercial liability lines business, both domestic U.S. and international with commercial reinsurance business representing approximately one third of the company's premium allocation. Allied World also writes property business and is exposed to the effects of industry-wide catastrophe losses, but to a lesser extent than its Bermuda peers. Allied World's shareholders' equity increased by 4.3% to $3.3 billion at June 30, 2012, led by strong first half 2012 net earnings of $315 million, offset somewhat by $159 million of share repurchase activity during the first half of the year. Fitch believes that Allied World uses a conservative amount of operating leverage relative to (re)insurer peers, with net premiums written to total shareholders' equity averaging 0.46x over the past five years. Allied World also uses a moderate amount of financial leverage in its capital structure. At June 30, 2012, debt securities represented approximately 19.6% of the company's over $4 billion of capital. The company maintains a high-quality asset portfolio with 76.7% invested in fixed-income securities with average credit ratings of 'AA-', while maintaining 12.4% of its invested assets in cash and short term assets at June 30, 2012. Allied World maintains a modest position in higher yielding alternative investments and equity securities which has grown in recent years but they total less than 15% of the company's total invested assets. Allied World reported $81 million of reserve releases in the first half of 2012, representing 9.8% of year-to-date net earned premium. Allied World has a history of conservative reserving practices and has benefited from an average of 19.0 percentage points on the combined ratio of favorable reserve development during the period 2007 and 2011, which is more than double the company's Bermuda peer average of 9.2 points of benefit from reserve releases during the same period. Key rating triggers that could result in a downgrade include a material loss of capital, underwriting results that no longer outperform peers, significant adverse reserve development, increases in underwriting leverage above a 1.0x net written premiums-to-equity ratio, financial leverage increasing above 25%, and catastrophe loss experience that greatly exceeds the company's probable maximum loss estimates. Key rating triggers that could result in an upgrade include continued favorable underwriting results in line with higher rated property/casualty (re)insurer peers. Material improvement in key financial metrics (e.g. net premiums written to equity) to more overcapitalized levels, and enhanced competitive positioning while maintaining strong profitability with low earnings volatility. Fitch assigns the following ratings with a Stable Outlook: Allied World Assurance Company Holdings, Ltd. --IDR 'A'; --$500 million 7.50% senior notes due Aug. 1, 2016 'A-'; --$300 million 5.50% senior notes due Nov. 1, 2020 'A-'. Allied World Assurance Company, Ltd. Allied World Assurance Company (U.S.) Inc. Allied World National Assurance Company Allied World Reinsurance Company --IFS 'A+' Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process other than through the medium of its public disclosure. Applicable Criteria and Related Research: --'Insurance Rating Methodology' (Sept. 2012) Applicable Criteria and Related Research: Insurance Rating Methodology
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