AM Best affirms Lloyd's A rating

The ratings agency has affirmed Lloyd’s of London financial strength rating of A (Excellent).

And it has affirmed issuer credit ratings (ICR) of "a+" of (Lloyd's) (United Kingdom) and Lloyd's Reinsurance Company (China) Limited (China). The outlook for all ratings is stable.

A M Best said Lloyd's is expected to maintain its strong capitalisation despite anticipated deterioration in performance during the current more challenging phase in the insurance cycle.

In 2010, central assets for solvency purposes are likely to remain stable at close to the 2009 year-end level of £2.8bn.

At the same time, A.M. Best believes the potential for large drawdowns on Central Fund assets is modest, as outstanding liabilities in respect of existing insolvent members remain at a manageable level, and Lloyd's robust market surveillance reduces the likelihood of future insolvencies.

Financial flexibility is enhanced by a diverse capital structure, and Lloyd's continues to draw investment from both corporate and non-corporate capital. However, with rates under pressure across major classes of business, new capital entering the market is likely to be restricted in the near term.

Performance in 2010 is likely to be weaker than the excellent level achieved in 2009, particularly following the Chilean earthquake and Deepwater Horizon oil rig catastrophes.

The overall combined ratio of the market is expected to deteriorate to between 95% and 100% , compared to 85% in 2009, assuming a normal pattern of catastrophe losses for the remainder of the year. Underwriting earnings are expected to continue to be supported by favourable movements on prior year reserves, although at a reduced level. Lloyd’s pre-tax profit of £3.868 bn, up from £1.899bn in 2008, represented a record result, reflecting generally benign catastrophe experience and an improved investment environment.

Lloyd's benefits from an excellent position in the global insurance and reinsurance markets as a specialist provider of property and casualty business. Its competitive strength derives from its reputation for underwriting expertise, innovation and flexibility, while its network of licences provides access to a wide international client base. Lloyd's business profile continues to demonstrate resilience to the challenges posed by the financial crisis. In particular, its broker subscription model, which allows large and complex risks to be shared between market participants, supported the market after the financial turmoil of 2008 highlighted the benefit for insurance buyers of spreading risk among different counterparties.