The Market ratings remain the principal measure of financial strength to be applied to operations underwriting at Lloyd’s, but several rating agencies separately provide syndicate-specific analysis. These analyses can support the reinsurance-buying decision-making process, but it is dangerous to rely on them without understanding the varying underlying methodologies. (None of these products are endorsed by Lloyd’s.)
Standard & Poor’s
The S&P Lloyd’s Syndicate Assessment product, which was launched in September 2002, evaluates syndicate continuity characteristics based on their relative dependency on Lloyd’s infrastructure and the Central Fund. Most are still based on public domain information, but an increasing number are conducted on a fee-paying basis, involving interactive discussions with management. S&P does not evaluate, on a public information basis, syndicates that have reported fewer than three closed years of accounts, syndicates that are part of interactively rated groups, syndicates that have undergone substantial recent restructuring or syndicates in run-off.
The assessment scale is from 1 (Very High Dependency) to 5 (Very Low Dependency). Thirty syndicates are currently assessed. The distribution is shown in Figure 1.
S&P is able to assign financial strength ratings to Lloyd’s corporate members in cases where an acceptable guarantee has been provided by another rated entity. On this basis, the sole capital backer to Syndicate 3210 (MSI Corporate Capital Ltd.) is rated “A+.”
Moody’s Investor Service
Syndicate Performance Ratings reflect Moody’s view of the potential future performance of an individual syndicate over the insurance cycle, relative to other Lloyd’s syndicates and based on currently known factors. They do not attempt to assess the security underlying Lloyd’s policies, but instead aim to address policyholder continuity on the basis that only syndicates that are profitable over the cycle are likely to retain capital support and therefore continue to trade over the medium to long-term. The ratings are forward-looking, make use of historical data and in most cases contain input from the syndicate’s management.
Moody’s rates 34 syndicates on a scale from B- to A+. The distribution is shown in Figure 2.
Unlike the other agencies, A.M. Best believes meaningful financial strength ratings can be assigned to individual syndicates. A.M. Best argues that some syndicates have standalone characteristics capable of supporting a rating at or above the level of the overall Market rating. Commencing in November 2001, the fundamental areas of analysis are the same as those employed for a traditional A.M. Best rating - capital strength, operating performance and business profile. These are directly comparable with A.M. Best’s Lloyd’s rating and follow the normal rating scale but are differentiated with an “s” postscript. The take-up has generally been from syndicates writing significant volumes of US business and those aiming to differentiate themselves in the market. However, only one syndicate currently exceeds the level of the Lloyd’s rating (Amlin Syndicate 2001, at “A+”), with 13 syndicates at “A” as shown in Figure 3.