On Friday, A.M. Best Europe–Rating Services Limited announced that it revised the outlook of its A (excellent) financial strength rating for Lloyd’s to positive, affirming the rating and moving the outlook up from Best’s previous view of stable.

Explaining the action, the rating agency said the positive outlook reflects the market’s strong operating performance in recent years, in spite of the exceptional record of natural catastrophes. In addition, it also reflects “A.M. Best’s assessment of the robust oversight of the market by Lloyd’s Performance Management Directorate and its demonstrable success in reducing earnings volatility.”

The rating agency also noted the steady improvement in the market’s risk-adjusted capitalization, adding that it expects the current capital level to be maintained “for the foreseeable future.”

Best also affirmed Lloyd’s issuer credit rating “a+” and FSR and ICR of Lloyd’s Insurance Company (China) Limited, also indicating positive outlooks for these ratings.

At the same time, A.M. Best has revised the outlook to positive from stable and affirmed the ICR of “a” of the Society of Lloyd’s (United Kingdom) and the debt ratings of “a-” on the subordinated loan notes issued by the Society in two tranches in November 2004 (6.875% subordinated notes of GBP 153 million maturing Nov. 17, 2025 and 5.625% subordinated notes of EUR 214 million maturing Nov. 17, 2024), and the 7.421% GBP 392 million junior perpetual subordinated loan notes issued in June 2007.

Overall, Best said the stability of Lloyd’s central capital base supports its view that capitalization will remain strong in 2013 and into 2014. Central assets for solvency purposes rose over 4 percent in 2012 to GBP 3,215 million ($4.9 billion) and are likely to remain close to this level throughout 2013, in spite of a buyback of approximately GBP 180 million ($275 million) of subordinated debt in May 2013.

With the exposure of central resources to insolvent members declining (as runoff liabilities decline), Best says Lloyd’s “robust risk-based approach” to setting member level capital and close monitoring of syndicates’ performance and catastrophe exposure should reduce the risk of material drawdowns on the central fund.

A.M. Best also took note of Lloyd’s internal capital model, 2012 profit level, and said that with another normal year of catastrophe events, it expects combined ratio below 95 for 2013.

Following the revision of the outlook to positive from stable for the ratings of Lloyd’s, A.M. Best has reviewed the syndicates that have interactive ratings at the market level. The FSR of A (Excellent) and ICR of “a+” have been affirmed and the outlook for these ratings revised to positive from stable for the syndicates listed below, to reflect the rating action on Lloyd’s:

  • Lloyd’s Syndicate 33, managed by Hiscox Syndicates 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 2010, managed by Cathedral Underwriting Limited
  • Lloyd’s Syndicate 609, managed by Atrium Underwriters Limited
  • Lloyd’s Syndicate 1225, managed by AEGIS Managing Agency Limited
  • Lloyd’s Syndicate 510, managed by R.J. Kiln & Co Limited
  • Lloyd’s Syndicate 2003, managed by Catlin Underwriting Agencies Limited
  • Lloyd’s Syndicate 3000, managed by Markel Syndicate Management Limited

The rating of Lloyd’s Syndicate 2001, managed by Amlin Underwriting Ltd, is not affected as this syndicate is currently rated above the Lloyd’s market level.

Source: A.M. Best