CONTACTS:
FOR IMMEDIATE RELEASE
LONDON - JULY 21, 2016 09:19 AM (EDT)
A.M. Best has revised the outlooks to stable from positive and affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a+” of Lloyd’s (United Kingdom) and Lloyd’s Insurance Company (China) Limited (LICCL) (China). Additionally, A.M. Best has revised the outlook to stable from positive and affirmed the ICR of “a” of Society of Lloyd’s (the Society) (United Kingdom) and the issue ratings of “a-” on the GBP 500 million 4.750% subordinated loan notes maturing 30 October 2024, and the issue rating of “bbb+” on GBP 392,013,000 7.421% junior perpetual subordinated loan notes redeemable 21 June 2017.
The rating affirmations reflect Lloyd’s strong and stable risk-adjusted capitalisation, excellent business profile and recent strong underwriting performance. 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, owing to pressure on Lloyd’s competitive position and prospective financial performance in an increasingly difficult operating environment.
Lloyd’s benefits from strong and stable risk-adjusted capitalisation, supported by a robust risk-based approach to setting member level capital. The exposure of central resources to insolvent members has fallen significantly over the past ten years and is now at a very low level. Lloyd’s financial flexibility continues to be good, enhanced by the diversity of its capital providers, which include corporate and non-corporate investors.
Operating performance has been good in recent years, supported by strong technical performance as demonstrated by an average five-year combined ratio of 91% (2011-2015). The combined ratio of 89% for 2015 benefited from benign catastrophe experience and another year of material reserve releases. Prospective performance is expected to be weaker than in the recent past due to deterioration in premium rates and assuming average catastrophe experience and a lower level of reserve releases.
Lloyd’s benefits from an excellent position in the global insurance and reinsurance markets. The collective size of the market and its unique capital structure enable syndicates to compete effectively with large international insurance groups under the well-recognised Lloyd’s brand. However, an increasingly difficult operating environment poses challenges 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. There has been a proactive response by Lloyd’s 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 will continue to closely monitor Lloyd’s ability to defend its strong competitive position against the prevailing market headwinds.
A.M. Best deviates from its Insurance Holding Company and Debt Ratings methodology in its analysis of the Society. The rating of the Society is notched from the rating of the Lloyd’s market. However, the Society is not the holding company of Lloyd’s which, as a market, does not have a holding company. Mitigating the deviation is the unique relationship between the Society and the Lloyd’s market, which means that the ability of the Society to meet its obligations is inextricably linked to the ability of Lloyd’s to meet its obligations.
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:
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.
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source.