Although rating agency A.M. Best says Validus Holdings’ Oct. 2, 2014 acquisition of Western World Insurance Group means greater financial flexibility for the acquired excess and surplus lines insurer, the rating agency downgraded Western World’s financial strength rating to A (excellent) from A+ (superior).

Oldwick, N.J.-based Best explained the rating action, saying that it was largely prompted by the deterioration of Western World’s underwriting and operating results over the last five years.

According to Best, Western World’s combined ratios have been consistently above 100 during his time frame and are not in line with A.M. Best’s expectations of companies at the superior rating level.

Best cited underperforming lines and high expense ratios as the cause of underwriting problems, and said that management has been addressing these issues through corrective actions. These actions will take some time to fully come to fruition and also carry execution risk, the rating agency said in its announcement, supplying further support for the downgrade action.

Although the group has been profitable, with net income heavily supported by investment income, net income levels have trended downward, Best added.

On the plus side, Best said that Western World still maintains a strong level of absolute and risk-adjusted capitalization. The announcement also highlighted Western World’s strong leadership position in the U.S. E&S sector.

The FSR of A+ (Superior) has been downgraded to A (Excellent) and the ICRs have been downgraded to “a+” from “aa-” for the following pooled members of Western World Insurance Group:

  • Western World Insurance Company
  • Stratford Insurance Company
  • Tudor Insurance Company

Source: A.M. Best