AM Best has upgraded the Financial Strength Rating (FSR) to A+ (Superior) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “aa-” (Superior) from “a+” (Excellent) of Lloyd’s (United Kingdom), Lloyd’s Insurance Company (China) Limited (Lloyd’s China) (China), and Lloyd’s Insurance Company S.A. (Lloyd’s Europe) (Belgium) (see Lloyd’s reports results).
The ratings reflect Lloyd’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, very favourable business profile and appropriate enterprise risk management.
AM Best has upgraded the Long-Term ICR to “a+” (Excellent) from “a” (Excellent) of Society of Lloyd’s (the Society) (United Kingdom) and the Long-Term Issue Credit Ratings to “a” (Excellent) from “a-” (Excellent) on the GBP 306 million 4.750% subordinated loan notes maturing 30 October 2024, as well as on the GBP 300 million 4.875% subordinated notes maturing 7 February 2047.
The outlooks of these Credit Ratings (ratings) have been revised to stable from positive.
The upgraded ratings reflect Lloyd’s market’s leading position in global general insurance and reinsurance, specializing in property/casualty risks. Its strong balance sheet and proven risk management capabilities contribute to this status. The market’s ability to attract and retain investors highlights its unique, capital-efficient structure and global business reach.
Lloyd’s strong balance sheet is supported by risk-adjusted capitalization, as indicated by Best’s Capital Adequacy Ratio (BCAR).
This strength is further bolstered by a robust risk-based capital approach and the Lloyd’s Central Fund, which covers policyholder obligations for all members. The Central Fund’s protection improved in 2021 with the purchase of Central Fund insurance, renewed for another five years in 2024.
AM Best’s evaluation of Lloyd’s balance sheet strength includes the constraints of member-level capital fungibility and the market’s financial flexibility, supported by diverse capital providers.
Catastrophe risk exposure is a concern. However, the requirement for members to replenish their funds at Lloyd’s to meet underwriting liabilities through the ‘Coming into Line’ process, along with the Corporation’s increased oversight of accumulation risk, helps mitigate potential volatility in risk-adjusted capitalization due to operating losses.
The operating performance assessment reflects AM Best’s expectation that the market will produce strong underwriting performance over the underwriting cycle and that capital will continue to be attracted to Lloyd’s.
Improved pricing conditions, as well as the robust performance oversight by the Corporation, materialised in measurable improvements in underwriting performance over recent years. Nonetheless, the market’s expense ratio continues to be higher than those of its peers.
Actions are being taken through the Future at Lloyd’s initiative to reduce the cost of placing business at Lloyd’s, although any benefits will likely take time to materialise.
The ratings of Lloyd’s China and Lloyd’s Europe reflect reinsurance support from Lloyd’s in the form of quota share contracts between Lloyd’s and the syndicates, which are active in its Chinese and European platforms.
The ratings of the Society are notched from the ratings of Lloyd’s, reflecting the unique relationship between the Society and Lloyd’s, which means that the ability of the Society to meets its obligations is inextricably linked to the ability of Lloyd’s to meet its obligations.
The Lloyd’s market ratings are the “floor of security” of all policies written at Lloyd’s across all Syndicates.
AM Best has also upgraded the FSR to A+ (Superior) from A (Excellent) and the Long-Term ICR to “aa-” (Superior) from “a+” (Excellent) for the following Lloyd’s syndicates. The outlooks of these ratings have been revised to stable from positive.
