Lloyd’s China Reinsurer Rated ‘A’ by S&P, Best and Fitch

April 3, 2007

The three major rating agencies, Standard & Poor’s, A.M. Best and Fitch Ratings, have all assigned “A” ratings (Fitch was actually ‘A+’) to Lloyd’s Reinsurance Co. (China) Ltd. (LRCCL), the Lloyd’s-backed underwriting subsidiary which was recently approved by Chinese regulatory authorities.

S&P assigned a positive outlook. Credit analyst Rob Jones indicated that the “rating on Lloyd’s China is based upon explicit support provided to it from the Market via full quota-share retrocession of all business underwritten by it exclusively to syndicates trading at Lloyd’s. The company’s cedents therefore benefit from the full scope of Lloyd’s security, including the Market’s Central Fund.”

Best said its ratings were “in line with the rating of Lloyd’s of London.” It has assigned a stable out look to the financial strength rating (FSR) and a positive outlook to the issuer credit rating (ICR). It also noted LRCCL’s link in the chain of security that supports Lloyd’s syndicates.

Fitch said it “regards LRCCL as core to Lloyd’s due to its comprehensive quota share retrocessional agreement, by which all risk is effectively transferred to Lloyd’s syndicates. As a result, cedents in China will have access to the full Lloyd’s chain of security for all risks placed with LRCCL. This quality of support allows LRCCL to be regarded as core notwithstanding its expected small scale.”

S&P indicated however, that the strong positive factors were “partly offset, however, by the London Market’s legacy administrative processes, as well as Lloyd’s relatively high reinsurance reliance, significant exposure to reinsurance recoverables, and continuing operating performance volatility. The consistency and effectiveness of strengthened catastrophe risk controls are also yet to be tested.”

Best said that it “anticipates that the volume of business is likely to be modest in 2007. Whilst the company’s performance in its early years of operation may be subject to volatility, A.M. Best believes that this is offset as a risk factor by the retrocession contract. Any residual risk to the new company is strongly supported by the company’s initial capitalization of RMB 200 million ($25 million).”

Best added that it believes LRCCL “provides Lloyd’s with a flexible means of writing business in the developing reinsurance market in China and will serve to enhance Lloyd’s profile in Asia. Lloyd’s syndicates that write reinsurance business in China through the new company will have underwriters located in China. It is also possible for syndicates to make use of LRCCL to process Chinese business written through brokers.”

Fitch made the same observation, adding that the having the “full Lloyd’s chain of security for all risks placed with LRCCL, …”allows LRCCL to be regarded as core notwithstanding its expected small scale.”

Fitch cautioned, however, that there is “no legal cut through agreement whereby Chinese cedents could obtain settlement of their liabilities directly from Lloyd’s syndicates if for any reason LRCCL was to be constrained from making payments by the Chinese regulatory authorities.”

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