Best Affirms Lloyd’s Syndicate 510 and Kiln Group Ratings; Outlook Stable

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 510, which is managed by R.J. Kiln & Co Ltd. Best also affirmed the ICR of ‘bbb+’ and the debt ratings of ‘bbb’ on $30 million and $35 million floating rate subordinated bonds issued by Kiln Group Limited, the non-operating holding company of R.J. Kiln. The outlook for all of the ratings is stable.

The syndicate’s ratings reflect the financial strength of the Lloyd’s market, which underpins the security of all Lloyd’s syndicates. In addition, Best noted, “syndicate 510 benefits from financial flexibility provided by Tokio Marine Holdings, Inc., the ultimate parent company of the syndicate’s managing agent (R.J. Kiln) and of Kiln Underwriting Limited, which provides 53 percent of the syndicate’s capacity.”

Best also pointed out that the syndicate benefits from a “comprehensive reinsurance program, which includes two long-standing pro rata treaties. A 53 percent share of each of the two treaties is underwritten by Lloyd’s Syndicate 1880, a syndicate established by Tokio Marine.

“On an annually accounted basis, syndicate 510 is expected to produce a lower pre-tax profit in 2011 than the £106 million [$167.6 million] reported in 2010, owing to its exposure to various large loss events during the first half of the year, including the earthquakes in New Zealand and Japan, the Australian floods and the U.S. tornadoes. Investment income from the syndicate’s conservative investment portfolio is likely to be materially lower than in 2010 due to low interest rates.”

The report explained that on a traditional underwriting year of account basis, “a good return on capacity for the 2009 year of account is anticipated, reflecting favorable pricing particularly in catastrophe exposed classes and a benign U.S. hurricane season. The result for the 2010 year of account will be affected by losses from major catastrophic events during 2010, including the earthquakes in Chile and New Zealand and the Australian floods, as well as the earthquakes in Japan and New Zealand in 2011.”

Best also noted that Syndicate 510 has a “strong business profile within the Lloyd’s market and leads approximately 65 percent of its business by premium volume. It writes a diversified account by territory and line of business, comprising short-tail property and marine, as well as political, aviation, accident and health and reinsurance risks. The wide geographical spread of the account is supported by Kiln’s strategy of developing long-term relationships with coverholders.

“In addition, Kiln has in the last year expanded its presence in Continental Europe by opening a new office in Frankfurt, Germany, adding to its 11 existing offices. For the 2012 year of account Lloyd’s Syndicate 807, which is also managed by R.J. Kiln, will be merged with syndicate 510. Syndicate 807 underwrites similar lines of business as syndicate 510, including treaty reinsurance, in addition to medical and property risks.

“The merger will simplify R.J. Kiln’s structure and is expected to lead to expense savings. Kiln Underwriting Limited provides 52 percent of the syndicate 807’s capacity for the 2011 year of account.

Source: A.M. Best