Best Affirms Lloyd’s Syndicate 1084 Ratings; Withdraws Chaucer Holdings’ Rating

July 7, 2011

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a+” of Lloyd’s Syndicate 1084. In addition Best affirmed the ICR of “bbb” of Chaucer Holdings PLC (CHP), an intermediate parent company of the syndicate’s managing agent, Chaucer Syndicates Ltd. (CSL). The outlook for all ratings remains stable. Best subsequently withdrew the ICR of CHP.

Best explained that the acquisition of CHP by The Hanover Insurance Group was completed on July 1, 2011. “CHP has been delisted and is now the intermediate holding company of CSL and Chaucer Corporate Capital (No 2) Limited (CCCL), which is a corporate member of syndicate 1084.”

Best said the “ratings of syndicate 1084 reflect the financial strength of Lloyd’s of London, which underpins the security of all syndicates. Most of the syndicate’s capacity (95.6 percent) is provided by CCCL, the ultimate parent of which is Hanover, while Labuan Reinsurance (L) Ltd. provides the remaining 4.4 percent through a limited tenancy agreement.

“For the 2011 year of account, the syndicate’s capacity is also supported by Flagstone Reassurance Suisse S.A., which provides quota share reinsurance protection to CCCL. The syndicate’s funds at Lloyd’s (FAL) consist of investments, undistributed prior year profits and letters of credit. The acquisition of CHP by Hanover provides the syndicate with a potential source of further capital, which in Best’s opinion enhances its financial flexibility.”

Best also indicated that it “expects syndicate 1084 to report an underwriting loss for 2011, with a combined ratio between 100 percent and 110 percent, assuming normal catastrophe experience in the remainder of the year. First- and second-quarter catastrophe losses are within Best’s expectations, taking into account the magnitude of the events and the nature of business written by the syndicate. Investment income is expected to be modest but positive, reflecting the low interest rate environment. Significant steps have been taken since 2008 to de-risk the investment portfolio, which now consists primarily of cash and fixed income securities.”

Syndicate 1084 writes a well-diversified portfolio comprising energy, marine, aviation, property and specialist lines. A large UK motor book is also written. The syndicate benefits from the profile of its managing agent CSL, which also manages syndicate 1176, offers a turnkey operation to new market entrants and provides run-off management. Hanover’s acquisition of CHP ends prolonged uncertainty regarding ownership of the syndicate’s managing agent and corporate member.

Source: A.M. Best

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