A.M. Best Assigns First Lloyd's Syndicate Rating to Euclidian Syndicate 1243.
OLDWICK, N.J.--(BUSINESS WIRE)--June 18, 2001
A.M. Best Co. has assigned a Best's Syndicate Rating of A (Excellent) to Euclidian Syndicate 1243.
A Best's Syndicate Rating reflects specific financial strength characteristics of the rated syndicate in addition to the financial strength characteristics of the Lloyd's market place overall that are reflected in A.M. Best's Lloyd's market rating (see `Summary of A.M Best's Approach to Syndicate Ratings' at the end of this release).
Syndicate 1243's rating reflects the strong overall capital structure of the Lloyd's market (see A.M Best's Lloyd's market rating at http://www.ambest.com/ratings/llweb.pdf ), the syndicate's high quality capital provider, well above average expected underwriting performance (top quartile among all Lloyd's syndicates), attractive niche business position and good underwriting controls. Partially offsetting these factors are the unexceptional expected investment return, limited access to some lines of business due to its small size and short track record.
Syndicate 1243 is 100% supported by Euclidian Group corporate members and has Funds at Lloyd's supplied wholly by Centre Group--A.M. Best rating of A (Excellent)--through a risk sharing arrangement. A maximum of GBP 125 million Funds at Lloyd's are available which could provide a maximum of GBP 250 million underwriting capacity. Currently, the syndicate uses GBP 61 million of this arrangement which provides Funds at Lloyd's to underwrite GBP 122 million capacity. Euclidian also underwrites on seven third party syndicates through its spread portfolio, taking the total Funds at Lloyd's requirement for 2001 to GBP 72 million.
With 100% Integrated Lloyd's Vehicle (ILV) support the syndicate has the flexibility to react to market conditions and make changes to its capital provision mid-year as capacity increases for the 2000 year of account demonstrate. The syndicate's liquidity position benefits from a USD 25 million bank facility. This facility has been made available for five years from 2001. While A.M. Best regards the presence of the Centre Group as a positive factor in that it is a stable and professional source of capital, Syndicate 1243's rating does not reflect additional explicit support from the group.
The syndicate had a top quartile underwriting performance--profit of 2.5% compared to Lloyd's market loss of 11.8%--for its first closed year of underwriting. Although a 3% loss is currently forecast for the 1999 year of account, this is still expected to reflect a top quartile performance within the Lloyd's market. Management expect profitability to improve and exceed 1998 levels for the 2000 to 2002 years of account.
The syndicate has a strong market position in certain specialty lines and benefits overall from its affiliation with Euclidian plc. In 2001, 20% of gross premiums are forecast to be derived via specialist classes such as kidnap and ransom and specie. The syndicate will also underwrite the major classes of property (33%), marine (31%) and liability (13%). The syndicate's business benefits from the Euclidian's broker operation, Euclidian Insurance Services, in its ability to target risks at the distribution level.
A.M. Best believes the underwriters at syndicate 1243 follow disciplined risk management procedures. Management at Euclidian have developed modelling techniques to optimise the underwriting portfolio. Usage of models by underwriters is high, reflecting a corporate philosophy at Euclidian that differs from many other Lloyd's syndicates. Additional controls include three tiers of peer review and a thorough risk review process. Further, Euclidian has commissioned independent studies of the premium rating improvements that it has been able to achieve for 2001 that confirm management's expectation of sustained upper quartile performance at Lloyd's.
Low investment returns are expected to be an ongoing feature of the syndicate's performance. This reflects the complexities a Lloyd's syndicate faces in generating investment returns within the Lloyd's premium trust fund structures. Its relatively small size may also restrict the syndicate's ability to gain access to some of the more attractive larger risks.
While A.M Best believes the management and underwriting teams have strong insurance and reinsurance market experience, and views the business model supporting the syndicate as a positive factor in the rating, the syndicate's short track record limits the amount of credit that can be given for its strong relative operating performance to date.
Summary of A.M Best's approach to Syndicate ratings
The partial mutualisation of capital at the Lloyd's market means that all Lloyd's policyholders are offered security of at least the market rating level--currently A (Excellent). However, syndicates whose stand-alone expected operating performance, supported by the quality of their business position, is consistent with an A (Excellent) or higher rating level may be able to earn a Best's Syndicate Rating reflecting the syndicate's specific strengths. Expected operating performance and quality of business position are key leading indicators of an insurer's ability to attract and retain capital, in the opinion of A.M. Best. Consequently, they are central to a forward-looking view of financial strength.
In addition, a syndicate with a capital provider committed to meeting all the liabilities of the syndicate, over and above its legal liabilities, may also achieve a Best's Syndicate Rating up to the rating level of the capital provider.
Receipt of a Best's Syndicate Rating is an interactive process requested by the syndicate.
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.
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|Date:||Jun 18, 2001|
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