Best Affirms Beazley and Lloyd’s Syndicates 2623, 623, 3623, 3622 Ratings

A.M. Best Europe – Rating Services Limited has affirmed the financial strength ratings of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a+” of Lloyd’s Syndicate 2623, Lloyd’s Syndicate 623, Lloyd’s Syndicate 3623 and Lloyd’s Syndicate 3622, as well as the ICR of “bbb+” of Jersey-based Beazley plc, the ultimate holding company of the Beazley group of companies, and of UK-based Beazley Group Limited, an intermediate holding company.

Best also affirmed the debt ratings of “bbb” on the £i50 million [$235 million] junior subordinated notes due 2026 and the $18 million junior subordinated notes due 2034 issued by Beazley Group Limited.

The outlook on all of the ratings is stable.

Syndicates 2623, 623, 3623 and 3622 are managed by Beazley Furlonge Limited. Syndicates 2623 and 623 underwrite business at Lloyd’s in parallel, with premiums for the 2012 year of account split 82 percent for syndicate 2623 and 18 percent for syndicate 623, in line with each syndicate’s share of overall combined capacity. Syndicates 2623, 3623 and 3622’s capital is provided 100 percent by Beazley, via its corporate member, while syndicate 623 is supported by third party capital. “The syndicates benefit from the good financial flexibility of the Beazley group as well as from the financial strength of the Lloyd’s market, which underpins the security of all Lloyd’s syndicates,” said Best.

“The Beazley group has a track record of good and stable underwriting performance, as demonstrated by an average five-year consolidated combined ratio of 87 percent,” Best continued. “Beazley’s well balanced underwriting portfolio contains a higher proportion of casualty business than is typical for groups with Lloyd’s operations, and this contributes to its stable results.

“The combined ratio on a consolidated basis is expected to deteriorate to around 100 percent in 2011, reflecting exposure to losses from the earthquakes in Japan and New Zealand, floods in Australia and Thailand, Hurricane Irene and US tornadoes. At 30 June 2011, Beazley had reserved USD 183 million for catastrophe losses, and that estimate was unchanged at 30 September 2011.

“The group’s casualty business, which is primarily professional indemnity business written within its specialty lines division, is expected to contribute positively to the 2011 result, helping to offset the catastrophe losses. The prospective performance of the casualty market is subject to uncertainty as claims experience is likely to be affected by the global economic slowdown. However, Beazley has taken measures to protect this business against financial crisis and recession related claims since 2008, partly mitigating this concern.”

Best also indicated that Beazley’s “investment income for the year is expected to be modest, reflecting Beazley’s strategy of holding a high proportion of its syndicates’ investment portfolios in government bonds. The fixed income portfolio contains no direct exposure to peripheral European government bonds and only limited exposure to euro zone banks.”

Best pointed out that Beazley’s syndicates have “a strong business profile in the Lloyd’s market, reflected in their good leadership position in key lines. Syndicates 2623 and 623 write a well-diversified portfolio of professional indemnity, property, property reinsurance, marine and political risk and contingency business.

“Syndicate 3622 writes short-term life insurance business, while 3623 writes accident and health business and quota share reinsurance of the majority of business lines written by Beazley’s US admitted insurer, Beazley Insurance Company Inc. (BICI).”

The report also noted that Beazley “continues to grow in the local U.S. market, writing targeted lines of business through a managing general agent and BICI. This locally written business improves the diversification of the syndicates and the group’s underwriting portfolios by size of risk.” However, Best observed that the “US market remains intensely competitive,” and it therefore “believes the group will find profitable growth in this market challenging in the near term.”

Best also indicated that, although it “does not expect a rating action in the near future, factors that may lead to a positive rating action for Beazley include a substantial improvement in risk-adjusted capitalization or performance. Factors that may lead to a negative rating action include a decline in risk-adjusted capitalization, a significant weakening of operating performance or deterioration in the group’s reserves.

“A factor that may lead to positive or negative rating actions for the syndicates include a change in the rating of the Lloyd’s market, which currently carries an FSR of ‘A (Excellent) and an ICR of “a+” and has a stable outlook.”

Source: A.M. Best

Topics USA Excess Surplus Lloyd's