A.M. Best Co. assigned an initial financial strength rating of A- (Excellent) to Goshawk Reinsurance Limited (Goshawk Re), the recently established Bermuda-based subsidiary of the U.K.’s Goshawk Insurance Holdings plc (GIH).
GIH is listed on the London Stock Exchange and owns 100% of the capacity of syndicate 102 at Lloyd’s, but raised around $145 million to establish an offshore reinsurance subsidiary.
Best’s announcement stated that, “The rating reflects Goshawk Re’s excellent capitalisation and business profile, its strong expected financial performance and experienced management team. Offsetting factors are the strain on management associated with a newly established operation, the highly competitive environment in Bermuda and planned retention levels for most of the classes of business Goshawk Re will write.”
Best further indicated that it “expects initial gross premium income for 2002 to be over USD 120 million, of which over 50% will have successfully been underwritten at Lloyd’s by syndicate 102. Goshawk Re will write a complementary book of business, using the syndicate’s existing distribution channels. Goshawk is in a position to negotiate advantageous terms with brokers and reinsurers with whom they have long established relationships.”
The report also recognized GIH’s “strong track record based on its underwriting at Lloyd’s.” Its Syndicate has “consistently outperformed the Lloyd’s global results over the last 10 years, providing evidence of strict underwriting guidelines and business selection controls.”
While there’s nothing unusual in establishing a Bermuda subsidiary, quite the contrary, GIH’s decision to go outside of Lloyd’s raises questions about several aspects of the Lloyd’s market. An offshore domicile offers not only regulatory and tax advantages, but also the fact that a new company with a clean balance sheet, unencumbered by long-tail liabilities and potential claims, may be a more attractive insurance partner than Lloyd’s is able to offer. As Lloyd’s is increasingly dependent on the continuing capital commitments of its corporate investors (See IJ Website Jan.3), GIH’s decision, if it proves to more than a one off anomaly, may signal the beginning of a trend with serious consequences for the Lloyd’s market.
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