KBRA Affirms Ratings on Somers Group and its Operating Subsidiaries

KBRA affirms the A insurance financial strength ratings (IFSRs) of Somers Re Ltd. (Somers Re) and its wholly owned direct and indirect subsidiaries: Watford Insurance Company Europe Limited, Axeria IARD, and Watford Specialty Insurance Company. Additionally, KBRA affirms the BBB+ issuer rating of Somers Group Holdings Ltd. (Somers Group), the BBB+ debt rating on Somers Group’s senior unsecured notes due 2029, and the BBB debt rating on Somers Group’s subordinated unsecured notes due 2032. The Outlook for all ratings is Stable.

Key Credit Considerations

The ratings reflect the group’s sound risk-adjusted capitalization, improved earnings profile, conservative investment portfolio, strong liquidity profile, and potential benefits from a recently launched Lloyd’s platform. Somers Group’s 2024 BSCR coverage ratio was 191%. For the 2024 BSCR filing, the BMA approved the use of standard capital charges for investments. This change in capital charges in conjunction with the significant derisking of the portfolio were the main drivers of the improvement in the solvency ratio. In 2024, Somers Re reported net income of $224 million on net earned premium of $1.5 billion. The combined ratio was 97.1%, up nearly 2 points from 2023, but still a solid result in an active catastrophe year, in KBRA’s opinion. Net written premiums rose to $1.7 billion, up 29% over 2023. Overall earnings were bolstered by net investment income of $181 million accompanied by $45 million in underwriting gain. Growth was skewed to the group’s European/Arch-aligned channels. At mid-year 2025, the group’s results were directionally consistent with 2024, despite softening market conditions and the impacts from both the California wildfires and market volatility from US tariffs. By the end of 2024, Somers Group attained its 90/10 IG/HY strategic asset allocation completing its multi-year effort to derisk its investment portfolio. High-risk asset leverage has declined to a modest level and KBRA expects the fixed income portfolio to maintain its current high credit quality going forward. As the group has continued to grow, operating cash flows have continued to trend up. At the end of 2024, Somers Re’s current liquidity ratio¹ was 113%, consistent with the prior two years, and in line with peer benchmarks. Somers Group measures its liquidity position based on a proprietary model. The model subjects each security in the portfolio to moderate stress to estimate its tradeable value in a down market. As of June 30, 2025, the group had approximately $2.5 billion in highly liquid assets. In May 2024, Somers Group acquired Lime Syndicate Management Limited and subsequently launched Somers Syndicate 3705 on January 1, 2025. A Lloyd’s presence broadens the group’s underwriting offerings and provides access to Lloyd’s global licenses. While the long-term benefits could be significant, this is somewhat offset by execution risk as the platform scales in the first few years of operation as part of Somers Group.

Balancing these strengths are the softening pricing environment, legacy US casualty tail risk, and leadership transition risk. Both Japan and Florida saw rate drift at the 2025 renewals. Against this backdrop the group is maintaining underwriting discipline and focusing on underwriting opportunities with adequate risk pricing while re-balancing exposures to align with the group’s risk appetite. Adverse prior year reserve development represented 3.7 points of Somers Group’s 2024 combined ratio. The largest driver was the US Casualty book which accounted for 2.1 points of the 3.7 total, largely attributable to two legacy treaties. The remainder was attributable to legacy programs and strengthening for inflation impacts on back years of the UK motor book. While the development was manageable and only represented ~2% of total net reserves at the end of 2024, KBRA believes these legacy exposures remain a distraction. The departure of the CRO in 2Q 2025 leaves a gap in a lean management team. This role was filled in late Q3 2025, however a stable handoff is required to keep ERM cadence intact.

Rating Sensitivities

A sustained combined ratio below 100% with modest prior year development through the cycle, a group BSCR coverage ratio at or above management’s target, low high-risk asset leverage, low financial leverage, scaling of Somers Syndicate 3705 in line with plan and distribution strategy, continued reserve stability, and/or the maintenance of the current strong liquidity profile could result in positive rating momentum.

Conversely, volatile results, significant adverse loss reserve development on legacy US casualty business, material missteps in the execution of its Lloyd’s strategy, materially higher holding company financial leverage and/or material weakening of the current strategic asset allocation toward higher risk assets could result in negative rating momentum.

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