Insurance and reinsurance marketplace Lloyd’s of London has appointed Kroll Bond Rating Agency (KBRA) to provide an additional independent opinion of its financial strength.
Accordingly, KBRA has assigned an AA- insurance financial strength rating (IFSR) to Lloyd’s with a stable outlook.
This complements existing financial strength ratings of A+ (Strong) from Standard & Poor’s, A (Excellent) from A.M. Best, and AA- (Very Strong) from Fitch Ratings. All ratings have a stable outlook attached.
KBRA said its ratings reflect Lloyd’s sound risk-adjusted capitalisation, unique capital structure, conservative underwriting leverage and sound technical reserves.
They also take into account Lloyd’s strong liquidity profile, diversified earnings sources, broad distribution channels and comprehensive risk management programme.
The new rating considers Lloyd’s capital growth at a compound annual growth rate of 6.5% since end-2014 despite elevated catastrophe and attritional losses since 2016.
According to KBRA, Lloyd’s maintains strong capital and solvency positions, with net resources increasing to £33.9bn in 2020 and a central and market wide solvency ratios of 209% and 147% respectively.
Balancing these strengths are recent unfavourable underwriting performance, an elevated expense ratio, heavy reliance on reinsurance and exposure to event risk, analysts noted.
While Lloyd’s has reported a cumulative result before tax from 2015–2020 of £2.9 billion, KBRA observed that this result has been driven solely by investment income as underwriting losses for the same period were £4.5 billion.
While much of the underwriting loss is attributable to major and catastrophe events, including £3.4 billion in incurred losses in 2020 for COVID–19, more concerning to KBRA are the elevated attritional losses since 2017, somewhat offset by Lloyd’s continued focus on performance management, which has generated a trend of improving results by capitalising on the current price firming across the industry
“We are delighted to appoint Kroll Bond Rating Agency and add an AA- stable outlook rating to sit alongside our financial strength ratings from our existing agencies,” said Burkhard Keese, CFO, Lloyd’s.
“At Lloyd’s we highly value our ratings as they are vital indicators to our customers, our market, and our investors of our exceptional financial position. As shown in our 2020 full-year results, our capital and solvency positions are strong and resilient, which is reflected in our current ratings,” Keese continued.
“We believe it is important to have a diversity of views in the ratings market and welcome KBRA as a new entrant that will provide a fresh perspective on Lloyd’s.”