Moody's lowers Allied World

Moody's Investors Service said it downgraded the ratings of Allied World Assurance Co. Holdings AG, including the senior debt rating for Allied World Assurance Company Holdings, Ltd. to Baa2 from Baa1.

The downgrades follow news that Fairfax Financial Holdings Ltd. completed the acquisition of Allied World, Moody's said.

This action concludes a review for downgrade that began in December 2016.

The outlook is stable.

The downgrades reflect an expectation that Fairfax will likely increase Allied World's investment risk over time, which will add volatility to the company's earnings, Moody's said.

Allied World's capitalization also is lower as a result of $438 million of dividends paid by Allied World as part of the transaction, the agency said.

Moody's also said it recognizes that the acquisition will bring strategic benefits for Allied World, as it is now part of a larger, more diversified organization with significant holding company liquidity.

The ratings also consider the company's well diversified mix of specialty insurance businesses with expertise in niche markets, historically solid and stable operating returns and relatively manageable catastrophe risk, the agency said.

These strengths are offset by exposure to specialty lines of business, which inherently carry more risk compared to conventional insurance lines, Moody's said.

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