AM Best has revised its outlooks to positive from stable for Somers Re Ltd, the Bermudian-based Class 4 insurer, and its subsidiaries.

The ratings agency also affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit ratings of “a-” (Excellent) of Somers Re and its subsidiaries: Watford Insurance Company Europe Ltd, of Gibraltar, Watford Specialty Insurance Company, of New Jersey, and Axeria IARD, of France.

In addition, AM Best has revised the outlook to positive from stable and affirmed the long-term ICR of “bbb-” (Good) of Somers Group Holdings Ltd, the group’s holding company.

Additionally, AM Best has placed under review with positive implications the FSR of A- (Excellent) and the long-term ICR of “a-” (Excellent) of Watford Insurance Company, of Kansas City, formerly owned by Somers.

The credit ratings of Somers reflects its 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 the strongest level of risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio, as of year-end 2023.

AM Best said the group’s capitalisation recovered after it was impacted by unrealised investment losses in 2022 and is supportive of the very strong balance sheet strength assessment.

The ratings agency said: “Somers has a developed 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 medium to long-tailed lines of business of lower volatility; however, more recently, the group has diversified into higher margin but more volatile short-tailed lines of business.”

AM Best added: “The positive outlooks stem from the group’s derisked investment portfolio, which has historically included leveraged loans and sub-prime credit assets and is now almost entirely investment-grade invested assets.

“Additionally, underwriting performance has been trending in a favourable direction over the last five years and the group achieved underwriting profitability in 2023.

“Profitable or break-even underwriting, coupled with low-volatility investment income, is projected to be accretive to the group’s capital position and support enhanced balance sheet strength.”

AM Best said the ratings of WIC have been placed under review with positive implications after the company’s sale to Arch Capital Group Ltd.

AM Best said it expects to resolve the under review with positive implications status when WIC is fully integrated into the Arch organisation.