S&P Raises Rating on Lloyd’s Advent Syndicate 0780; Outlook Positive

May 15, 2007

Standard & Poor’s Ratings Services has raised its Lloyd’s Syndicate Assessment (LSA) on Advent Underwriting – Syndicate 0780 to “2” from “2-” with a positive outlook.

“The upgrade reflects the improvements made to the syndicate’s underwriting controls, and the reunderwriting of the portfolio to prevent repetition of the historical levels of volatility and severe losses,” stated S&P credit analyst Matthew Day.

However, S&P noted that its analysis continues to reflect the Syndicate’s “weak operating performance from 2001-2005.” During the period it was affected by a “disproportionate” number of severe industry losses, marginal reserving “with continuing adverse development on prior years experienced in 2006.” Its recent enhancements have yet to show signs of success.

But S&P recognized “management’s increasingly proactive strategy to strengthen the operating performance of the syndicate,” along with improving its capital position, as well as its “good competitive position,” which benefits from that of the Lloyd’s insurance market. S&P currently rates Lloyd’s “A+” with a stable outlook.

Those factors led to S&P’s assigning a “positive outlook” to the Syndicate. The rating agency expects that the syndicate’s strategic changes will eventually culminate in a “sustainable, profitable operating track record, with greatly reduced volatility.”

S&P also noted “ongoing enterprise risk management improvements, coupled with the syndicate’s revised risk profile.” These initiatives have “reduced the potential for peak losses,” which was also helped by the “benign catastrophe experience” of 2006.

S&P is forecasting a combined ratio in 2007-08 “below 95 percent” for the Syndicate, but that figure excludes “the impact of major catastrophes,” a rather open ended caveat.

The Group’s capitalization is expected to improve, “coupled with the correction of members’ balances to positive by year-end 2008,” said S&P. “Fairfax Financial Holdings PLC is expected to remain as the major shareholder of the syndicate over the medium term, with some dilution of shareholding not material to the assessment.”

Positive movement for the assessment is only expected upon the establishment of a track record of strong risk selection, demonstrated by lower volatility in earnings, reserving, and capitalization. The outlook may revert to stable if future earnings fail to meet management expectations or failures in syndicate risk management lead to peak losses. Material reserve deterioration would also prompt a review of the assessment.

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