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Best’s News & Research Service - June 24, 2022 11:41 AM (EDT)

AM Best Removes From Under Review and Affirms Credit Ratings of LIA Holdings Limited and Rated Subs; Assigns Negative Outlooks

  • June 24, 2022 11:41 AM (EDT)
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London //BestWire// - AM Best has removed from under review with negative implications and affirmed the Financial Strength Ratings of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) of Lombard International Life Assurance Company (LILAC) (Philadelphia, PA), Lombard International Life Assurance Company of New York (LILAC NY) (New York, NY), Lombard International Assurance S.A. (LIA SA) (Luxembourg), Lombard International Life Assurance Company (Bermuda) Ltd. (LILAC Bermuda) (Bermuda) and Lombard International Life Ltd. (LILL) (Bermuda). Concurrently, AM Best has removed from under review with negative implications and affirmed the Long-Term ICR of “bbb-” (Good) of LIA Holdings Limited (Lombard International) (United Kingdom), a non-operating holding company. The outlook assigned to these Credit Ratings (ratings) is negative.

The ratings reflect Lombard International’s consolidated balance sheet strength, which AM Best assesses as very strong, as well as the group’s adequate operating performance, neutral business profile and appropriate enterprise risk management. The ratings of LILAC, LILAC NY, LIA SA, LILAC Bermuda, and LILL factor in their strategic importance to Lombard International, and their integration within the group.

The ratings have been removed from under review with negative implications as AM Best has gained clarity regarding the impact on the group’s balance sheet strength of a review by the Italian tax authorities into the Italian business written by LIA SA. Following the conclusion of the review, LIA SA has reached a settlement with the Italian tax authorities, which is expected to result in a payment by the group.

The ratings have been assigned a negative outlook due to pressure on the balance sheet strength assessment. Lombard International’s consolidated risk-adjusted capitalisation is expected to remain at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), despite the impact of the settlement on its capital and surplus. However, the reduction in capital and surplus is expected to lead to significantly elevated financial leverage. Whilst Lombard International has committed to reduce its financial leverage over the medium term, there is uncertainty as to its ability to execute on its plan. Failure to reduce financial leverage could lead to a negative rating action.

AM Best considers the group’s liability profile to be relatively low risk, as it primarily provides unit-linked products, for which policyholders bear the investment risk. There are no living benefit guarantees and mortality risk is low, as it is largely reinsured with a variety of reinsurers of high credit quality. Partially offsetting factors in the balance sheet strength assessment include the group’s high reliance on soft capital components, including value of in force, to support its risk-adjusted capitalisation.

Lombard International’s operating performance is supported by a steady inflow of fee revenue, as the group expands its assets under management. AM Best expects the group to continue to produce stable cash flows, driven by solid new business generation and excellent persistency of the existing portfolio.

Lombard International maintains a solid position in its core markets, offering tailored products to high and ultra-high net worth individuals, primarily in Europe and the United States. A focus on this client base means that the group is highly susceptible to changes in legislation with respect to domestic and international taxation.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.

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