A.M. Best has affirmed the financial strength and credit ratings of Lloyd's, asserting its central solvency capital is likely to remain strong through this year.
The Oldwick, N.J.-based ratings agency affirmed the financial strength rating of "A" (excellent) and issuer credit rating of "a" for the London-based insurance market.
Luke Savage, Lloyd's director of finance and risk management, expressed satisfaction with the action. "Given last year's record natural catastrophes, we are particularly pleased A.M. Best has recognized the progress that Lloyd's has made in preparing for and dealing with catastrophes."
Lloyd's central solvency capital is likely to stay strong through 2006, remaining at a comparable level to year-end 2005 despite an anticipated increase in Central Fund drawdown from existing insolvent members, the agency noted.
Best put the capital figure at $3.2 billion. The company said Lloyd's stable overall position is likely to incorporate a significant increase in Central Fund net assets–about 25 percent–as a result of the increase in the contribution rate to 1 percent, up from .5 percent last year.
Best said there is sufficient tolerance within central assets to withstand a significant stress scenario without threatening the market's solvency.
"The major catastrophes of 2005 have had an impact on earnings and member-level capital, driving an increase in Lloyd's balance sheet liabilities in 2005 of 26 percent, which in turn led to a decline of net resources of nearly 10 percent," Best said in a statement.
But the catastrophe losses have not had an impact on central assets, other than a modest impact from members already in runoff.
Enhanced management of risk and performance will help prevent the more extreme downside results Lloyd's suffered in previous cycles, Best said.
The agency said it expects a combined ratio of 98 for 2006, down considerably from 112 last year, it noted.
Increasingly competitive market conductions will most likely push the figure to a break-even 100 in 2007 and 2008, Best said.
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