A.M. Best Affirms Ratings of Lloyd’s Syndicate 1084 and Chaucer Holdings PLC

A.M. Best Co. has affirmed the Best’s Syndicate Rating of A (Excellent) and the issuer credit rating (ICR) of “a+” of Lloyd’s Syndicate 1084 (United Kingdom). At the same time, A.M. Best has affirmed the ICR of “bbb” of Chaucer Holdings PLC (CHP) (United Kingdom), the ultimate parent company of the syndicate’s managing agent, Chaucer Syndicates Ltd (CSL). The outlook for all ratings is stable.

The ratings of syndicate 1084 reflect the financial strength of Lloyd’s of London (Lloyd’s), which underpins the security of all syndicates. CHP provides 95% of the capacity of the syndicate, via its corporate member, while Labuan Reinsurance (L) Ltd provides the remaining 5% through a limited tenancy agreement. For the 2010 year of account, CHP’s share of the syndicate’s capacity is partly supported by Flagstone Reassurance Suisse SA, which provides quota share reinsurance protection to CHP’s corporate member. The syndicate’s funds at Lloyd’s (FAL) consist of investments, undistributed prior year profits and letters of credit.

A.M. Best expects the syndicate to report an overall profit in 2010, albeit at a lower level than for 2009 and reliant on investment income. A combined ratio between 100% and 105% is likely (2009: 92.7%), taking into account losses from the Chilean earthquake and the Deepwater Horizon oil rig explosion and assuming normal catastrophe activity in the remainder of the year.

The syndicate has taken significant steps to de-risk its investment portfolio following large losses in 2008, which arose primarily from its equity and hedge fund portfolios. As at year-end 2009, GBP 37.8 million of the syndicate’s investments remained in hedge funds (2008: GBP 154.7 million) and GBP 2.5 million in equities (2008: GBP 3.5 million). The hedge fund portfolio has been further reduced in 2010.

Syndicate 1084 writes a well diversified portfolio comprising property and casualty insurance and reinsurance business. The syndicate benefits from the profile of its managing agent CSL, which also manages syndicate 1176, offers a turnkey operation to new market entrants and provides run-off management.

The principal methodology used in determining these ratings is http://www.ambest.com/ratings/methodology/bcrm.pdf, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Rating Lloyd’s Syndicates”; “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Understanding Universal BCAR”; and “Natural Catastrophe Stress Test Methodology”. Methodologies can be found at http://www.ambest.com/ratings/methodology.