A.M. Best Affirms Lloyd’s ‘A- (Excellent)’ Rating

April 23, 2002

A.M. Best announced that it has maintained the A- (Excellent) financial strength rating of the Lloyd’s market “after the recent announcement of a 2001 loss of GBP 3.11 billion [$4.5 billion], on an annually accounted basis.”

Lloyd’s announced the loss figures earlier this month (See IJ Website April 11), and while the change to annual accounting greatly increased the amount, it was not unexpected. Lloyd’s indicated at the time that if 2001 losses had been based on its traditional three year system they would have been around £1.56 billion ($2.26 billion), less than the loss estimates it’s made for 1999 ($2.83 billion) and 2000 ($2.49 billion).

Best’s report acknowledged that “conventional annual accounting alters the year in which premium and claims are recognised,” but found that “Lloyd’s excellent financial strength, strong business profile, strengthened regulatory regime and prospective improvements in operating performance,” continued to support its current rating.

However, the bulletin noted a number of “Offsetting factors” which include “Lloyd’s poor recent performance, capital continuity disadvantages associated with the annual venture, the impact of losses arising from the US terrorist attacks of 11th September 2001 and uncertainty over the ultimate adequacy of Equitas’ reserves.” Best also indicated that Lloyd’s latest figures were in line with the previous estimates it had made.

Best’s report concluded on a positive note with the following “Expectations:”
— A.M. Best believes Lloyd’s is likely to trade successfully through the recent period of losses, including losses arising from the US terrorist attacks.
— A.M. Best believes Lloyd’s is in a strong position to take advantage of favourable market conditions in 2002 and the market will produce a healthy return on capital employed for the year, assuming normal loss experience.
— A.M. Best expects central assets available to meet unpaid cash calls to be higher at the end of 2002 than at the end of 2001 and that maintenance of the Central Fund at a minimum of the pre-WTC level – including insurance protection – will be an on-going feature of the market.

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