Best Affirms Ratings of Lloyd’s Syndicate 958 (Omega); Outlook Stable

September 7, 2011

A.M. Best Europe – Rating Services Ltd. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of ‘a+’ of Lloyd’s Syndicate 958, which is managed by Omega Underwriting Agents Limited. The outlook for both ratings remains stable.

Best also indicated that the FSR of ‘A-‘ (Excellent) and ICR of ‘a-‘ of Omega Specialty Insurance Company Limited (OSIL) and Omega US Insurance, Inc., both headquartered in Schaumburg, Illinois, as well as the ICR of ‘bbb’ of Omega Insurance Holdings Limited “are unaffected and remain under review with negative implications. All the above companies are subsidiaries of Omega, and are domiciled in Bermuda, unless otherwise specified.

Best pointed out that Omega’s management team “has taken positive action” to alleviate Best’s concerns “regarding the group’s risk management processes and the ongoing placement of the 2011 reinsurance program and has reduced the group’s exposure to catastrophe events.”

However, Best also indicated that “uncertainty remains in respect of the continuing review by the group’s directors of approaches that may lead to an offer to acquire Omega,” a possibility that Best will continue to follow.

The ratings of Lloyd’s Syndicate 958 “reflect the financial strength of the Lloyd’s of London (Lloyd’s) market, which underpins the security of all Lloyd’s syndicates,” Best continued. In addition, syndicate 958 “benefits from the financial flexibility provided by Omega. Omega Dedicated Limited, Omega’s corporate member at Lloyd’s, provides 40.5 percent of the capacity of syndicate 958 for its 2011 year of account and OSIL underwrites a 20 percent quota share of the syndicate.

“On an annually accounted basis, syndicate 958 recorded a loss in 2010 of £6.1 million [9.74 million], with a combined ratio of 107 percent, reflecting the impact of the natural catastrophe and single large loss events throughout the year, including the Chilean and New Zealand earthquakes, Deepwater Horizon oil rig disaster, Aban Pearl gas rig sinking and Australian weather events.”

In addition Best indicated that a “similarly weak performance in 2011 is likely following the major market losses in the first half of 2011. On a traditional year of account basis, the 2008 year of account closed with a return on capacity of 3.5 percent as a result of losses from hurricanes Gustav and Ike and lower investment returns, while for 2009 the return is expected to be between 3 percent and 8 percent, reflecting the generally benign catastrophe experience during that year, offset by the impact on the 2009 account of the Chilean earthquake and Deepwater Horizon oil rig explosion in early 2010.

“For the 2010 year of account the return is expected to be between -12.5 percent and -2.5 percent on capacity, reflecting the effect of not only the losses in 2010, but also those arising from the Australian floods and the New Zealand and Japanese earthquakes in early 2011.”

On a more positive note, Best described Syndicate 958 as having “a good business profile within the London market as a specialist underwriter of short-tail, small to medium-sized property risks, predominantly located in the United States (more than half of gross written premiums in 2010 were derived from U.S. business).

“In addition, the syndicate benefits from its presence in the European market through Omega Europe GmbH, a wholly owned subsidiary of Omega that operates solely as a coverholder to the syndicate.”

Source: A.M. Best

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