AM Best has upgraded Lloyd’s (United Kingdom), Lloyd’s Insurance Company Limited (Lloyd’s China) and other Lloyd’s subsidiaries’ Financial Strength Rating (FSR) to “A+” (Superior) from “A” (Excellent) and Long-Term Issuer Credit Ratings (Long-Term ICR) to “aa-” (Superior) from “a+” (Excellent).
Additionally, AM Best upgraded (the Society)’s Long-Term ICR to “a+” (Excellent) from “a” (Excellent) and Long-Term Issue Credit Ratings to “a” (Excellent).
The ratings agency added that the outlook for credit ratings has been changed from positive to stable.
AM Best views Lloyd’s balance sheet strength and operating performance as ‘very strong.’ Lloyd’s ‘very favourable’ business profile and appropriate enterprise risk management were also contributing factors to the rating.
The upgraded ratings also demonstrate the excellent market position Lloyds is in, particularly in the global general insurance and reinsurance sectors.
Key Market Drivers
“The upgrading of the ratings reflects the Lloyd’s market’s (the market) excellent position in the global general insurance and reinsurance markets as a leading writer of speciality property/casualty risks, together with its strengthened balance sheet fundamentals and proven risk management capabilities,” AM Best said in its rating upgrade.
“The growing size of the market demonstrates its ability to attract and retain investors due to its unique business proposition that offers a capital efficient structure and the ability to write business globally,” the credit rating agency added.
AM Best also pointed to Lloyd’s balance sheet, saying that its strength is supported by risk-adjusted capitalisation at the strongest level, based on Best’s Capital Adequacy Ratio (BCAR) measurement.
On top of this, the company’s capital adequacy is underpinned by an extensive risk-based method in setting member-level capital and Lloyd’s Central Fund, with coverage enhanced in 2021, following Corporation of Lloyd’s purchase of Central Fund insurance.
One offsetting factor is the exposure of Lloyd’s market to catastrophe risks. “However, the requirement for members to replenish their funds at Lloyd’s to meet their underwriting liabilities, as part of the ‘Coming into Line’ process, together with the Corporation’s enhanced oversight of accumulation risk, partly mitigates the potential for volatility in risk-adjusted capitalisation due to operating losses,” AM Best added.
AM Best also notes that their assessment of operating performance shows their expectation that the market will bring about strong underwriting performance.
“Improved pricing conditions, as well as the robust performance oversight by the Corporation, materialised in measurable improvements in underwriting performance over recent years,” AM Best said. “Nonetheless, the market’s expense ratio continues to be higher than those of its peers. Actions are being taken through the Future at Lloyd’s initiative to reduce the cost of placing business at Lloyd’s, although any benefits will likely take time to materialise.”
The quota shares contracts between Lloyd’s and the syndicates, which are active on its platforms in China and Europe, reflect Lloyd’s reinsurance support, as shown in AM Best’s ratings of Lloyd’s China and Lloyd’s Europe.
Across all of its syndicates, Lloyd’s market ratings are considered the “floor of security” of all policies, said AM Best.
AM Best added that it had upgraded the following Lloyd’s Syndicates FSR to A+ (Superior) from A (Excellent) and the Long-Term ICR to “aa-” (Superior) from “a+” (Excellent):
- Lloyd’s Syndicate 2001, managed by Amlin Underwriting Ltd
- Lloyd’s Syndicate 2623, managed by Beazley Furlonge Limited
- Lloyd’s Syndicate 623, managed by Beazley Furlonge Limited
- Lloyd’s Syndicate 3623, managed by Beazley Furlonge Limited
- Lloyd’s Syndicate 3622, managed by Beazley Furlonge Limited
- Lloyd’s Syndicate 33, managed by Hiscox Syndicates Ltd
- Lloyd’s Syndicate 3000, managed by Markel Syndicate Management Limited
