Best Affirms Beazley’s Lloyd’s Syndicates Ratings ; Downgrades Holding Co. ICR

February 11, 2013

A.M. Best Europe – Rating Services Limited has affirmed the financial strength ratings (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a+” of Lloyd’s Syndicate 2623, Lloyd’s Syndicate 623, Lloyd’s Syndicate 3623 and Lloyd’s Syndicate 3622.

Best also announced that it has downgraded the ICR to “bbb” from “bbb+” of Beazley plc, which is domiciled on the Island of Jersey, and is the ultimate holding company of the Beazley group of companies. best also downgraded the ICR of the UK-based Beazley Group Limited, an intermediate holding company.

In conjunction with those actions Best has also downgraded the debt ratings to “bbb-” from “bbb” on the £150 million [$237 million] junior subordinated notes due 2026 and the $18 million junior subordinated notes due 2034 issued by Beazley Group Limited.

Best said the outlook for all of the ratings is stable, noting that it has subsequently “withdrawn the ratings of Beazley, Beazley Group Limited and the associated debt ratings, as the companies have requested to no longer participate in A.M. Best’s interactive rating process.”

The downgrade of the ratings of Beazley, Beazley Group Limited and the rated debt “follows the announcement on 7 February 2013 of the group’s offer to buy back the majority of its subordinated debt in 2013 and possible issue of senior debt,” Best explained.

“The buy-back of £47.3 million [$74.74 million] of subordinated debt in 2012 and the expected replacement in 2013 of subordinated debt with senior debt reduces the quality of the group’s capital according to Best’s rating criteria. In addition, consolidated risk-adjusted capitalization has been negatively affected since 2011 by the group’s active dividend strategy and the full utilization of its catastrophe risk appetite.”

Best’s report did note that Beazley has “a good performance record, supported by strong reserving practices, and is expected to continue to benefit from internal capital generation. In addition, financial flexibility is strong, due in part to relatively low debt leverage and good interest expense coverage.

“However, the group is expected to continue to follow an active capital management strategy and, taking into account the quality of capital,” best said it “now expects the group’s consolidated risk-adjusted capitalization to be maintained at a level that supports a “bbb” holding company rating rather than a “bbb+” rating.”

The report added: “Beazley underwrites primarily within the Lloyd’s market, with only 2 percent of net written premium in 2011 written outside the Lloyd’s market. Syndicates 2623, 623, 3623 and 3622 are managed by Beazley Furlonge Limited. Syndicates 2623 and 623 underwrite business at Lloyd’s in parallel, with premiums for the 2013 year of account split 82 percent for syndicate 2623 and 18 percent for syndicate 623, in line with each syndicate’s share of overall combined capacity.

“Syndicates 2623, 3623 and 3622’s capital is provided 100 percent by Beazley, via its corporate member, while syndicate 623 is supported by third party capital. The syndicates benefit from the good financial flexibility of the Beazley group as well as from the financial strength of the Lloyd’s market, which underpins the security of all Lloyd’s syndicates.

“Beazley has a track record of good and stable underwriting performance, as demonstrated by an average combined ratio of 91 percent for the period 2009-2012. Its well-balanced underwriting portfolio, which includes a large casualty account, has contributed to its stable results record. The combined ratio for 2012 was 88 percent, and a similar ratio is expected for 2013, in line with the long-term performance of the group. Investment income has been positive but modest since 2008, reflecting the low interest rate environment.”

Best also, indicated that the “group has a strong business profile in the Lloyd’s market through syndicates 2623 and 623 in particular, reflected in good leadership positions in key lines. A well-diversified portfolio of professional indemnity, property, reinsurance, marine and political risk and contingency business is underwritten. In addition, life, accident and health business is written through syndicates 3623 and 3622.

“A factor that may lead to positive or negative rating actions for the syndicates is a change in the rating of the Lloyd’s market, which currently carries an FSR of ‘A’ (Excellent) and an ICR of “a+”, and has a stable outlook.”

Source: A.M. Best – Europe

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