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, high-quality and well-diversified investment portfolio, strong liquidity profile, strong ERM framework, and potential benefits from its recently launched Lloyd’s platform. Somers Group’s 2025 BSCR coverage ratio was 196%, which continues to reflect the BMA approved the use of standard capital charges for investments as part of the 2024 BSCR filing. In 2025, Somers Re reported net income of $237.4 million on net earned premium of $1.8 billion. The combined ratio improved approximately 2 points to 95.0%, marking the third consecutive year below 100%, while net written premiums increased to $1.8 billion from $1.7 billion. Earnings remained investment-led, with $200.8 million of net investment income, but underwriting income also increased to $89.1 million. By the end of 2024, Somers Group had nearly completed the derisking of its investment portfolio and attained its 90/10 investment-grade/high-yield strategic asset allocation, bringing the portfolio more in line with Bermuda peers. A new strategic asset allocation established in 2Q26 continues to emphasize high-quality spread assets while increasing securitized exposure within investment-grade holdings and introducing a modest equity allocation. Somers Group also maintains a strong liquidity profile. At year-end 2025, Somers Re’s current liquidity ratio¹ was 111%, consistent with recent years and generally in line with peer benchmarks. The group utilizes a proprietary liquidity framework that stresses individual securities to estimate their tradeable value in a down market. As of December 31, 2025, Somers Group had approximately $2.8 billion of highly liquid assets. KBRA also views Somers Group’s ERM framework and reserving discipline favorably. The group operates under a three-lines-of-defense framework anchored by Board oversight and four Board committees, with the ORSA integrated into decision-making and extensive scenario analysis and reverse stress testing incorporated into risk management. Somers Syndicate 3705, which commenced operations on January 1, 2025, broadens the group’s underwriting capabilities and provides access to the Lloyd’s global platform. The syndicate wrote premiums in 2025 across property, specialty, finpro/healthcare and casualty, with growth continuing in the first half of 2026. While the long-term benefits could be significant, these are partially offset by execution risk as the platform scales. Somers Group also derives a substantial portion of its business through its relationship with Arch. The relationship provides meaningful business opportunities given Arch’s scale, longevity and market position. However, Somers depends on certain Arch subsidiaries for business sourcing and services critical to underwriting and a material change in these arrangements could affect operations.

Balancing these strengths are continued pricing pressure in property catastrophe and key-person risk. Property catastrophe rates declined again at the 2026 renewals, returning pricing to approximately 2022/2023 levels. Somers Group continues to emphasize underwriting discipline and believes selected property catastrophe opportunities continue to meet its targeted returns. In addition, the group maintains a relatively lean management team given its outsourced operating model. Somers added a Head of Risk and Compliance and a Reserving and Capital Actuary in late 2025, strengthening its risk-management resources, but the loss of any key individual could still disrupt operations.

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, maintenance of low high-risk asset leverage, scaling of Somers Syndicate 3705 in line with plan and distribution strategy, and/or continued reserve stability could result in positive rating momentum.

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

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