AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit ratings of “a-” (Excellent) of Bermudian-based Somers Re Ltd and its subsidiaries: Watford Insurance Company Europe Ltd of Gibraltar; Watford Insurance Company and Watford Specialty Insurance Company of New Jersey; and Axeria IARD of France.

In addition, the agency has affirmed the long-term ICR of “bbb-” (Good) of Bermudian-based Somers Group Holdings Ltd, the group’s holding company.

The outlook of these credit ratings is stable.

The ratings reflect Somers’ balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

Somers had a very strong level of risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio, as of year-end 2022.

The group’s capitalisation was impacted by unrealised investment losses in 2022 but remains supportive of a very strong balance sheet strength assessment.

AM Best said the group’s five-year average operating returns have been volatile, and it has experienced significant fluctuations in realised and unrealised gains and losses. However, Somers has been profitable in three of the past five years (2018-2022).

Somers has developed a global reinsurance and insurance platform. Business is sourced and underwritten primarily through contracts with Arch Capital Group Ltd and its entities, which also provides the core functions for the company’s underwriting operations.

Historically, the group has focused on lower-volatility, medium- to long-tailed lines of business; however, more recently, the group has diversified into more volatile short-tailed lines of business, as well.

AM Best said negative rating actions could arise if Somers’ risk-adjusted capitalisation were to deteriorate further beyond its current level or if the group’s liquidity was compromised.

Additionally, rating actions could occur from a reversal in the group’s underwriting performance trend, which has seen declining combined ratios in recent years.

Positive rating action could occur, though unlikely in the near term, if the group’s operating performance continues to trend in a positive direction and the group begins to produce significant underwriting profits, AM Best said.