Fitch Ratings said it has upgraded Lloyd's financial strength rating by one notch to "A-plus" with a stable outlook.
The upgrade followed confirmation on Tuesday that Equitas, which reinsures the pre-1993 long-tail liabilities of Lloyd's of London syndicates, has completed a reinsurance transaction with Berkshire Hathaway subsidiary National Indemnity Co. as announced in October last year.
Moreover, Fitch noted the absence of catastrophic losses for 2006 will most likely enhance the earnings that are announced today.
"Fitch also draws comfort from the progress of Lloyd's management reforming the market's operating practices and managing underwriting exposures as most lines of business experience price softening," the agency said in a statement.
National Indemnity has reinsured all of Equitas' liabilities and has provided an additional $5.7 billion in cover to Equitas.
In addition to reinsurance cover, Berkshire will take on the staff, operations and management of the runoff of Equitas.
Fitch said that it had previously regarded the potential for reserve deterioration through Equitas as being a significant drag on the Lloyd's ratings. "The additional buffer provided by the transaction with Berkshire removes much of this risk and is the prime driver behind the upgrade," the rating agency said.
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