LONDON–(BUSINESS WIRE)–#insurance—AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of �a+ (Excellent) of Lloyds (United Kingdom), Lloyds Insurance Company (China) Limited (Lloyds China) (China), and Lloyds Insurance Company S.A. (Lloyds Brussels) (Belgium). Concurrently, AM Best has affirmed the Long-Term ICR of a (Excellent) of Society of Lloyds (the Society) (United Kingdom) and the Long-Term Issue Credit Ratings of a- (Excellent) on the GBP 500 million 4.750% subordinated loan notes maturing 30 October 2024 and on the GBP 300 million 4.875% subordinated notes maturing 7 February 2047. The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Lloyds balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management.
The Lloyds market (the market) benefits from its risk-adjusted capitalisation being at the strongest level, as measured by Bests Capital Adequacy Ratio (BCAR). Capital adequacy is supported by a robust risk-based approach to setting member-level capital and Lloyds strong Central Fund, which is available to meet the policyholder obligations of all Lloyds members. AM Bests assessment of the balance sheet strength of Lloyds takes into account the fungibility constraints of capital held at the member level and the markets good financial flexibility, which is enhanced by the diversity of its capital providers.
The markets exposure to catastrophe risk is an offsetting rating factor. However, the requirement for members to replenish their Funds at Lloyds to meet their underwriting liabilities, as part of the coming into line process, together with the Corporation of Lloyds (the Corporation) enhanced oversight of accumulation risk, partly mitigates the potential for volatility in risk-adjusted capitalisation due to operating losses. Despite significant losses associated with the COVID-19 pandemic, risk-adjusted capitalisation has strengthened as member-level capital was replenished in line with AM Bests expectations.
The operating performance assessment reflects AM Bests expectation that Lloyds will produce strong technical performance over the underwriting cycle and that capital will continue to be attracted to the market. Recent underwriting performance has been below AM Bests expectations for a strong assessment demonstrated by a five-year (2016-2020) combined ratio of 105.9%. Performance in 2020 was adversely impacted by its COVID-19 pandemic-related losses, which contributed 13.3% to the reported combined ratio. However, improving market conditions, as well as the robust performance oversight by the Corporation, have led to a measureable impact on recent attritional accident-year performance. Further incremental improvements are expected. The markets expense ratio continues to be higher than its peers. Actions are being taken through the Future at Lloyds initiative to reduce the cost of placing business at Lloyds, the benefit of which should start to be realised over the short-term.
The business profile assessment reflects the strong position of Lloyds in its core markets, as a leading writer of reinsurance and specialty property/casualty insurance. Lloyds has an excellent brand in these markets, which are experiencing improving market conditions. The markets business mix is well-diversified but with some geographical bias toward North America and product bias toward moderate to high-risk commercial specialty lines.
The ratings of Lloyds China and Lloyds Brussels reflect reinsurance support from Lloyds in the form of quota share contracts between Lloyds and the syndicates that are active on its China and Brussels platforms.
The rating of the Society is notched from the rating of Lloyds, reflecting the unique relationship between the Society and Lloyds, which means that the ability of the Society to meet its obligations is inextricably linked to the ability of Lloyds to meet its obligations.
This press release relates to Credit Ratings that have been published on AM Bests 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 AM Bests Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Bests Credit Ratings. For information on the proper use of Bests Credit Ratings, Bests Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Bests Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
Copyright © 2021 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
Contacts
Jessica Botelho-Young, CA
Associate Director, Analytics
+44 20 7397 0310
jessica.botelho@ambest.com
Tim Prince
Director, Analytics
+44 20 7397 0320
timothy.prince@ambest.com
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com
Jim Peavy
Director, Communications
+1 908 439 2200, ext. 5644
james.peavy@ambest.com
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