Allied World financial strength upgraded to A-plus by AM Best on “strong” operating performance

By David Bull

May 22 - (The Insurer) - AM Best has upgraded the financial strength rating of Allied World’s operating affiliates from A to A+ and the long-term issuer credit ratings (ICR) of its holding company from aa-minus to a-plus as it pointed to improved underwriting ratios, as well as stronger streams of dividend and interest income in recent years.

The ratings action was announced as AM Best said it has also upgraded the long-term ICR on the unsecured debt and preferred equity of ultimate parent Fairfax Financial from bbb-plus to a-minus.

The long-term ICRs of Fairfax US and Zenith National Insurance Corp – which are wholly-owned downstream holding companies of Fairfax – were upgraded from bbb-plus to a-minus.

The outlooks on all these ratings were revised from positive to stable.

Commenting further on the Allied World upgrades, AM Best said the ratings reflect the carrier’s balance sheet strength, which it assesses as “strongest”, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management.

“Allied World’s rating upgrades stem from a revision of the operating performance assessment to strong from adequate. Allied World has benefited from improved underwriting ratios, as well as stronger streams of dividend and interest income in recent years.

“AM Best views Allied World’s solid recent and prospective underwriting results as reflective of sound cycle management strategies that have reduced volatility, while at the same time steadily increasing underwriting income,” said the ratings agency.

AM Best said that Fairfax’s rating upgrades reflect its improved earnings in recent years and prospectively.

It noted that in 2022 the Canadian investment holding company deployed “significant” cash assets into high-yielding fixed-income instruments which then bolstered reliable streams of dividend and interest income.

“At the same time, the group’s underwriting performance recorded record profits despite elevated catastrophe activity. These enhanced returns have allowed the group to grow its capital base and further expand its projected run-rate for operating earnings in future cycles,” the ratings agency commented in a statement.

Fairfax Financial bought Allied World for $4.9 billion in cash and stock in a transaction that closed in the summer of 2017.

Other Fairfax Financial insurance operations include Odyssey, Brit, Northbridge, Zenith National and Crum & Forster.