Best Affirms FSR for Lloyd’s Syndicate 1225; Outlook is Stable

March 6, 2006

A.M. Best Co. has affirmed the Best’s Syndicate Rating of A (Excellent) and issuer credit rating (ICR) of “a” of Lloyd’s Syndicate 1225 (United Kingdom), which is managed by AEGIS Managing Agency Ltd (AEGIS UK). The ultimate parent of AEGIS UK is Associated Electric and Gas Insurance Services Ltd (AEGIS Bermuda), a mutual energy insurer. The outlook for both ratings is stable.

In addition to benefiting from the financial strength of the Lloyd’s market, which underpins the security of all Lloyd’s syndicates, A.M. Best believes syndicate 1225’s ratings are supported by its strong profile for energy business and its parent company’s solid financial resources. An offsetting factor is the syndicate’s volatile prospective earnings due to high exposure to natural catastrophes as a result of both geographical and class of business concentration within its underwriting portfolio.

A.M. Best believes the syndicate’s financial flexibility is likely to be enhanced in the short term by retained earnings within AEGIS Electric & Gas International Services Limited, the syndicate’s sole dedicated capital provider. In addition, the syndicate’s cash flow is likely to remain strong in 2006 despite significant claims payments arising from the U.S. hurricanes in 2005.

A.M. Best believes syndicate 1225 is likely to return an excellent profit of 28% on capacity when the 2003 year of account is closed. This represents an improvement from 15% in 2002, resulting from stronger market conditions as well as enhancements to the syndicate’s underwriting strategy originally implemented in 2001. However, for the 2004 year of account, A.M. Best anticipates a reduction in profitability to a break-even result due to the impact of the 2004 U.S. hurricanes and an element of the 2005 U.S. hurricanes, particularly from the syndicate’s substantial energy account. A.M. Best believes a significant loss of approximately 10% is likely for the 2005 year of account, which bears the bulk of the syndicate’s 2005 U.S. hurricane losses (estimated at USD 88 million net across both years).

Prospectively, A.M. Best believes the syndicate’s performance is likely to continue to be volatile. In 2006, A.M. Best believes the syndicate is likely to generate strong earnings (subject to normal catastrophe experience) as a result of anticipated favourable market conditions for its main lines of business.

Syndicate 1225’s strong profile for its core energy business is supported by its association with AEGIS Bermuda. A.M. Best anticipates an increase in the amount of business the syndicate leads in the near future, with business written for members of AEGIS Bermuda accounting for an increasing part of the account.

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