Best Revises Lloyd’s Outlook to Stable from Positive on Difficult Business Conditions

July 22, 2016

A.M. Best has revised the outlooks to stable from positive of Lloyd’s and Lloyd’s Insurance Co. (China) Ltd., while at the same time affirming their financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+”.

In addition, A.M. Best has revised the outlook to stable from positive and affirmed the ICR of “a” of the Society of Lloyd’s.

The revision of the outlooks to stable from positive reflects A.M. Best’s view that an upgrade of the ratings in the short term is unlikely as a result of pressure on Lloyd’s competitive position and financial performance in an increasingly difficult operating environment.

A.M. Best said the rating affirmations reflect Lloyd’s strong and stable risk-adjusted capitalization, strong position in the global insurance and reinsurance markets and strong underwriting performance.

Risk Adjusted Capitalization

“Lloyd’s benefits from strong and stable risk-adjusted capitalization, supported by a robust risk-based approach to setting member level capital,” A.M. Best said.

“The exposure of central resources to insolvent members has fallen significantly over the past 10 years and is now at a very low level,” said the ratings agency, noting that Lloyd’s financial flexibility continues to be enhanced by the diversity of capital providers, which include corporate and non-corporate investors.

Position in Global Re/Insurance Market

With an excellent position in the global insurance and reinsurance markets, Lloyd’s benefits from the collective size of the market as well as its unique capital structure, which enables “syndicates to compete effectively with large international insurance groups under the well-recognized Lloyd’s brand.”

Underwriting Performance

A.M. Best affirmed that Lloyd’s operating performance has been good in recent years, supported by strong technical performance as demonstrated by an average five-year combined ratio of 91 percent (2011-2015).

“The combined ratio of 89 percent for 2015 benefited from benign catastrophe experience and another year of material reserve releases,” said the ratings agency, noting that future performance likely will be weaker than in the recent past due to deterioration in premium rates, a return to average catastrophe claims and a lower level of reserve releases.

Difficult Operating Environment

A.M. Best warned that an increasingly difficult business environment could challenge to Lloyd’s competitive position.

“In particular, the growth of regional re/insurance hubs combined with the comparatively high cost of placing business at Lloyd’s is reducing the flow of business into the London market,” A.M. Best said.

However, Lloyd’s has taken a proactive response to these threats. “Improved access to international business is being supported by the Vision 2025 strategy and the establishment of regional platforms, and Lloyd’s continues to implement initiatives to improve efficiency and reduce operating costs,” A.M. Best continued.

Following the ratings outlook change for Lloyd’s, the outlooks have been revised to stable from positive and the FSR of A (Excellent) and the ICRs of “a+” have been affirmed for each of the following Lloyd’s syndicates:

  • Lloyd’s Syndicate 33, managed by Hiscox Syndicates Ltd.
  • Lloyd’s Syndicate 2623, managed by Beazley Furlonge Ltd.
  • Lloyd’s Syndicate 623, managed by Beazley Furlonge Ltd.
  • Lloyd’s Syndicate 3623, managed by Beazley Furlonge Ltd.
  • Lloyd’s Syndicate 3622, managed by Beazley Furlonge Ltd.
  • Lloyd’s Syndicate 2010, managed by Cathedral Underwriting Ltd.
  • Lloyd’s Syndicate 1225, managed by AEGIS Managing Agency Ltd.
  • Lloyd’s Syndicate 510,managed by Tokio Marine Kiln Syndicates Ltd.
  • Lloyd’s Syndicate 2003,managed by Catlin Underwriting Agencies Ltd.
  • Lloyd’s Syndicate 3000, managed by Markel Syndicate Management Ltd.

The ratings of Lloyd’s Syndicate 2001, managed by MS Amlin Underwriting Ltd., are not affected, as this syndicate is currently rated above the Lloyd’s market level. Lloyd’s Syndicate 2001’s FSR of A+ (Superior) and ICR of “aa-” remain under review with developing implications.

Source: A.M. Best

Topics Trends Excess Surplus Reinsurance Lloyd's AM Best

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