October 13, 2016 / 10:41 AM / a year ago

Correction: Fitch Rates Beazley IFS 'A+'; Outlook Stable

(The following statement was released by the rating agency) LONDON, October 13 (Fitch) This rating action commentary replaces the version published on 5 October 2016 to correct the chair details. Fitch Ratings has Fitch Ratings has assigned Beazley Re Designated Activity Company (Beazley Re) an Insurer Financial Strength Rating (IFS) of 'A+'. It has also assigned Beazley Re and ultimate parent and holding company of the group, Beazley plc, (collectively Beazley) Issuer Default Ratings (IDR) of 'A'. All ratings carry a Stable Outlook. KEY RATING DRIVERS The ratings of Beazley are underpinned by its historically strong and stable underwriting performance, strong capitalisation, prudent reserving practices and its established position in the London insurance market. However, the ratings are constrained by the group's business profile, which Fitch views as strong, but limited by the group's medium size in terms of business volume. In 2015, Beazley's gross written premium grew 3% to USD2.1bn. Its significant presence in the Lloyd's market is viewed positively by Fitch. Beazley's Lloyd's syndicates benefit from a strong track record and good reputation among brokers. As a result, Beazley is the lead on a large amount of business that it underwrites through the platform. Fitch believes that Beazley's underwriting performance will remain strong over the medium term despite competition pressuring rates. Beazley has reported strong underwriting profitability in recent years as reflected in a Fitch-calculated five-year average combined ratio of 89%. The group's profit after tax in 2015 was up 14% yoy at USD249m, driven by an improved combined ratio aided by an increase in prior year reserve releases. Fitch views Beazley's capitalisation as strong. Beazley's score in Fitch's Prism Factor-Based Model was 'Extremely Strong' at end-2015. Fitch expects capitalisation to remain supportive of Beazley's ratings, reflecting the group's strong underwriting performance and limited asset risk, and assuming an 'average' level of catastrophe activity during the remainder of 2016. Beazley's financial leverage of 15% in 2015 (2014: 16%) is viewed as low compared with Lloyd's market peers and is supportive of the ratings. Fitch views Beazley's debt-servicing ability as strong, as reflected in a 20x fixed-charge coverage in 2015 (2014: 15x). The agency's view of Beazley's good financial flexibility is driven by the number of internal and external funding options available to the insurer. Fitch believes that Beazley's reserve adequacy is strong, which will continue to contribute to technical profitability. The company targets a margin on net held reserves between 5% and 10% above the actuarial estimate and has been able to report continuous strong prior year reserve releases. The margin in net held reserves above the actuarial estimate was 8.2% in 2015 (2014: 7.1%). Beazley's conservative investment strategy is positive for the ratings. Eighty-seven per cent of Beazley's investments are part of the group's core portfolio (CP). The CP, which consists of cash investments, sovereigns and highly rated bonds, is held to serve insurance claims, with durations managed with reference to insurance liabilities. The remaining 13% of investments belong to the capital growth portfolio, which includes equity and hedge fund exposures. RATING SENSITIVITIES An upgrade of Beazley's ratings is unlikely given the group's business profile, which is not expected to change materially in the medium term. Deterioration in profitability, reflected in a combined ratio consistently above 97%, or net return on equity consistently below 10% could lead to a downgrade. Similarly, a prolonged decline in capitalisation to a level below 'Very Strong' could also lead to a downgrade. Contact: Primary Analyst Graham Coutts Director +44 20 3530 1654 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Ekaterina Ishchenko Associate Director +44 20 3530 1532 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1013052 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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