A.M. Best Co. said it hasdowngraded the rating of Lloyd's Syndicate 1414, managed by Ascot Underwriting Limited, after American International Group dropped its unconditional guarantee of syndicate liabilities.
The rating was dropped to "A" (Excellent) from "A-plus" (Superior) and the issuer credit rating (ICR) to "a-plus" from "AA-minus." The outlook for both ratings, said Best, is stable.
Best said the changes follow notice that American Home Assurance Company (a member of AIG) had cancelled its unconditional guarantee of the syndicate's liabilities.
According to Best, AIG's management decided to terminate the guarantee in an effort to optimize capital efficiency and simplify AIG's structure.
Although the explicit support provided by the guarantee was an important factor in the rating, Best said it believes AIG remains committed to Syndicate 1414 as reflected in the continuation of its shareholding (currently approximately 98 percent) in Ascot Corporate Name Ltd, the syndicate's sole capital provider.
The revised rating also factors Syndicate 1414′s good anticipated operating performance, its well-diversified underwriting portfolio, as well as the financial strength of the Lloyd's market, which underpins the security of all Lloyd's syndicates.
Best said, in its opinion, Syndicate 1414 is likely to generate good earnings for the 2007 year of account and further ahead, although performance will continue to be dependent on catastrophe experience.
It said in 2006, rating conditions strengthened across the syndicate's core excess of loss, property and energy accounts, and a return on capacity after personal expenses in excess of 25 percent is likely for this year of account.
A partially offsetting rating factor that was noted is weaker-than-anticipated performance in 2005, with the syndicate expected to produce a loss on capacity after personal expenses of approximately 18 percent, driven by its significant exposure to U.S. hurricanes (net incurred loss of approximately ?160 million ($319 million).
On an annually accounted basis, the syndicate reported a profit of ?158.3 million ($310 million) for 2006 (compared with a ?91.7 million or $157.6 million loss in 2005).
Best said it believes the syndicate's portfolio is well diversified by account type with an emphasis on short-tail, catastrophe-exposed business. The accounts written include excess of loss, property, energy, cargo, terrorism, specie, fine art, marine hull, marine liabilities, aviation war and political risks.
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