AM Best’s recent assessment of Lloyd’s operating performance highlights the rating agency’s expectation that Lloyd’s will produce strong technical performance over the underwriting cycle, and that capital will continue to be attracted to the market.
Analysts noted that improved pricing conditions, as well as a robust performance oversight by the corporation, has began to materialise in major improvements in underwriting performance, which was clearly demonstrated by Lloyd’s year-end 2021 combined ratio of 93.5%.
AM Best affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issued Credit Ratings of “a+” (Excellent) of Lloyds (UK), Lloyd’s Insurance Company (China) Limited (Lloyd’s China) (China), and Lloyd’s Insurance Company S.A. (Lloyd’s Europe) (Belgium).
At the same time, the rating agency also has affirmed the Long-Term ICR of “a” (Excellent) of Society of Lloyd’s (the Society) (UK) 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 is stable.
AM Best noted that the ratings reflect Lloyd’s balance sheet strength, which it assesses as very strong, as well as its strong operating performance, business profile, and appropriate enterprise risk management.
Overall, the Lloyd’s market benefits from risk-adjusted capitalisation being at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR).
AM Best’s assessment of Lloyd’s balance sheet strength takes into account the fungibility constraints of capital held at the member level and the market’s good financial flexibility, which is enhanced by the diversity of its capital providers.
However, analysts stated the market’s exposure to catastrophe risk is an offsetting factor. But, 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.
Furthermore, analysts noted that the business profile assessment reflects the strong position of Lloyd’s in its core markets as a leading writer of reinsurance and specialist property and casualty insurance. Analysts highlighted that Lloyd’s has an excellent brand in these markets.
Meanwhile, Jefferies recently offered its view on Lloyd’s, highlighting that the pricing environment remains positive, despite catastrophe losses.