Best Affirms Lloyd’s Syndicate 2010, Cathedral Capital Ratings

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating (ICR) of “a+” of Lloyd’s Syndicate 2010, which is managed by Cathedral Underwriting Limited. Best also affirmed the ICR of “bbb+” and the debt ratings of “bbb” on the $10 million and €12 million [$16.53 million] floating rate subordinated notes due 2034 and both tranches of the $25 million floating rate subordinated notes due 2035 of Cathedral Capital Holdings Limited.

The outlook for all of the ratings remains stable.

The syndicate’s ratings “reflect the financial strength of the Lloyd’s market, which underpins the security of all Lloyd’s syndicates,” said Best. In addition, the ratings “factor in the syndicate’s comprehensive reinsurance protection and track record of producing strong results, which reflect its disciplined underwriting approach.

“On an annually accounted basis, syndicate 2010 is expected to produce a small overall loss in 2011, owing to its exposure to the numerous large loss events of the first half of the year, including the earthquakes in New Zealand and Japan and the U.S. tornadoes. A combined ratio of approximately 105 percent is expected, assuming normal catastrophe experience in the remainder of the year. The syndicate’s conservative investment portfolio is likely to produce a positive but modest yield.”

Best also noted that on a “traditional underwriting year of account basis, a good return on capacity for the 2009 open year of account is anticipated, reflecting the generally benign catastrophe experience during that year. For the 2010 open year of account a loss on capacity of approximately 5 percent is expected, reflecting the impact of catastrophes that occurred in 2010 and early 2011.”

The report also explained that “Syndicate 2010 writes a specialist portfolio of non-marine reinsurance, direct and facultative property insurance and aviation reinsurance. Smaller accounts of contingency and satellite insurance are also written. The syndicate’s portfolio is relatively concentrated in terms of classes of business written and has significant exposure to catastrophe losses.

“However, the potential for volatile earnings that arises from these factors is mitigated by the syndicate’s extensive reinsurance program. This leads to an offsetting rating factor, as the syndicate is highly dependent on the ongoing support of its reinsurers.”

Source: A.M. Best