Fitch Ratings provided Issuer Default Rating ("IDR") 'A' and
Senior debt 'A-' to
Allied World Assurance Company Holdings, Ltd.
). Concurrently, the rating agency provided Insurer Financial
Strength ("IFS") to its property/casualty and reinsurance
subsidiaries. The ratings carry a stable outlook.
ACE LIMITED (ACE): Free Stock Analysis Report
ALLIED WORLD AS (AWH): Free Stock Analysis
ENDURANCE SPLTY (ENH): Free Stock Analysis
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The ratings account for sustained solid underwriting results,
strong capitalization, superb reserve position and superior
The company had lower combined ratio in the past two quarters due
to lower catastrophes when compared with the year-ago level. Allied
World's lion's share in premium comes from commercial liability
lines business. Commercial reinsurance business represents one
third of the company's premium.
Fitch noted that over the last five years, Allied World's net
premiums written to total shareholders' equity averaged 0.46x. The
company also has lower financial leverage with debt representing
19.6% of capital as on June 30, 2012. Additionally, shareholders'
equity increased by 4.3%.
The rating agency also noted that higher yielding alternative
investments and equity securities comprises less than 15% of the
total invested assets.
Rating affirmations or upgrades from credit rating agencies play an
important part in retaining investor confidence in the stock as
well as maintaining creditworthiness in the market. On the other
hand, rating downgrade adversely affects the business, besides
increasing cost of future debt issuances. We believe strong
scorings with rating agencies will help it write more business
Ratings could be revised upward if Allied World continues to post
solid underwriting results, substantially improves financial
metrics, solidifies competitive position, minimizes earnings
instability and delivers solid profitability.
However, ratings will be subject to downgrade if capital erodes,
lags peers in terms of underwriting results or experiences
considerable adverse loss reserve development. Also, if
underwriting leverage moves ahead of 1.0x net written
premiums-to-equity ratio, financial leverage moves beyond 25% or
incurs massive catastrophe loss.
We retain our Neutral recommendation on Allied World Assurance
Company. The quantitative Zacks #2 Rank (short-term Buy rating) for
the company indicates upward boost on the shares over the near
), which closely competes with Allied World carries a Zacks #3 Rank
(short term Hold rating) while
Endurance Specialty Holdings Ltd.
) carries a Zacks #4 Rank (short term Sell rating).