MOODY'S ASSIGNS POSITIVE OUTLOOK TO THE INSURANCE FINANCIAL STRENGTH RATING OF LLOYD'S SYNDICATE 2001
Moody's Investors Service has changed the outlook on the A2 insurance financial strength rating of Amlin syndicate 2001 to positive from stable. Moody’s stated that the change to the rating outlook reflects the improving financial fundamentals of syndicate 2001. It also reflects the significant improvement in the financial profile of the syndicate’s main capital backer, Amlin plc (Amlin), whose earnings are driven by the performance of syndicate 2001.
The rating agency elaborated that syndicate 2001, whose underlying performance has been improving from 1999, has significantly outperformed the Lloyd’s market for the 2000 year of account, and is forecast to do so again for 2001. Despite a large World Trade Center (WTC) loss of 14% of capacity, the syndicate is currently forecasting a small profit of 1% for the 2001 year of account. Furthermore, within a very favourable trading environment, syndicate 2001 has meaningfully increased its capacity for both the 2002 and 2003 years of account. With a diverse book of business and good management and underwriting skills, Moody’s believes that the outlook for the syndicate’s earnings in the short-to-medium term is positive. The syndicate is currently forecasting a profit of 15% on capacity for the 2002 year of account.
With regard to capital, Moody’s said that syndicate 2001 is currently 85% backed by its owner, Amlin, which intends to provide 100% of the syndicate’s capacity from 2004. Aside from benefiting from the above-average performance to-date of syndicate 2001, Amlin’s net tangible asset position has significantly improved from £122m at the end of 2001 to £250m at the end of 2002. Amlin recorded a profit before tax for 2002 of £55m in marked contrast to the £82m loss recorded for 2001. In line with its expectations for syndicate 2001, Moody’s anticipates that, assuming a normal loss experience, Amlin’s financial profile will continue to improve.
The rating agency further said that, in its opinion, the syndicate’s biggest reserving challenge is in respect of WTC. Whilst stating that the current loss estimates (around $595m gross, $140m net of reinsurance recoveries) were material, particularly on a gross basis, in relation to the syndicate's earnings and capital base, Moody’s nevertheless noted several considerations that continue to help reduce its concerns. These include the relative stability in the loss estimates and the quality of the syndicate's reinsurance programme which should continue to significantly mitigate credit-related losses. Furthermore, the syndicate has collected or has collateral with regard to around 55% of the $455m of recoverables estimated to be due, the outstanding amount representing around a manageable 30% of the syndicate’s capital or 12% of 2003 capacity.
Moody’s also said that, in its opinion, the minimum security offered by the Lloyd’s market improved materially in 2002. This factor is viewed as positive for syndicate 2001, given that all of Amlin’s underwriting continues to be based in the Lloyd’s market, and the syndicate’s open years of account are supported by some third party capital.
Going forward, Moody’s said that it will continue to closely monitor the performance and WTC loss estimates of syndicate 2001, the financial profile of Amlin as well as the Lloyd’s operating environment.
In light of the above, Moody's has placed the B+ Above Average performance rating of syndicate 2001 under review for possible upgrade reflecting the rating agency’s belief that the syndicate’s future cross-cycle performance may be more consistent with the A- rating category.
Syndicate 2001 is the largest syndicate in the Lloyd's of London market, with capacity and estimated gross premium of around £1 billion for 2003. Amlin Underwriting Limited, the syndicate's manager, is based in London, England.
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