S&P Gives Lloyd's China Re Unit An 'A'

Standard & Poor's Ratings Services said today it assigned its "A" long-term insurer financial strength rating to Lloyd's newly approved Chinese reinsurance subsidiary and the outlook is positive.

The rating went to Lloyd's Reinsurance Co. China Ltd., an underwriting subsidiary of U.K.-based Corporation of Lloyd's, the organization that oversees the London-based Lloyd's insurance market.

Lloyd's announced two weeks ago that the China Insurance Regulatory Commission had approved a license to underwrite onshore reinsurance business throughout China.

The new operation, Lloyd's said, will provide Chinese insurers with full access to the Lloyd's market and give Lloyd's improved access to the Chinese reinsurance market. An opening ceremony for the new office is set for April 16 in Shanghai.

Standard & Poor's credit analyst Rob Jones said the rating on Lloyd's China is "based upon explicit support provided to it from the Lloyd's market via full quota-share retrocession of all business underwritten by it exclusively to syndicates trading at Lloyd's."

Mr. Jones said the new company's cedents "benefit from the full scope of Lloyd's security, including the Market's Central Fund."

S&P said the rating on Lloyd's China reflects Lloyd's strong competitive position, strong operating performance, strong capitalization and strong financial flexibility.

The rating firm noted, however, that the positive factors are partly offset by the London Market's legacy administrative processes, as well as Lloyd's relatively high reinsurance reliance, significant exposure to reinsurance recoverables and continuing operating performance volatility.

It added that the consistency and effectiveness of the market's strengthened catastrophe risk controls are also yet to be tested.

The rating on Lloyd's China is not capped by the ratings on the People's Republic of China (A/Stable/A-1) by virtue of the operation of Lloyd's Central Fund, S&P noted.

The positive outlook on Lloyd's China, S&P concluded, reflects that on Lloyd's. Rating actions or outlook revisions on Lloyd's would be replicated at Lloyd's China.