Best Affirms Lloyd’s Syndicate 1084 (Chaucer) ‘A’ Ratings

A.M. Best Co. has affirmed the Best’s Syndicate Rating of ‘A ‘(Excellent) and the issuer credit rating (ICR) of “a+” of Lloyd’s Syndicate 1084. Best also affirmed the ICR of “bbb” of Chaucer Holdings PLC (CHP), the ultimate parent company of the syndicate’s managing agency, Chaucer Syndicates Limited (CSL). The outlook for all ratings is stable.

Best said it “expects syndicate 1084 to produce good financial results in 2009, subject to catastrophe experience. On an annually accounted basis, the syndicate produced a pre-tax loss of £33.7 million [$54.55 million] in 2008, primarily as a result of substantial investment losses.”

The rating agency also forecasts additional “further large investment losses in 2009. But it notes that the impact has been reduced “following steps taken by the syndicate to de-risk its investment portfolio by disposing of its equity and absolute return bond funds and investing the proceeds in cash and high quality bonds.”

However, Best notes that the “syndicate remains exposed to hedge funds, which produced substantial losses in 2008. Although the syndicate has served notice to close all its hedge fund investments, reducing them to 8.3 percent of invested funds as at 30 June 2009 from 20.1 percent as at year-end 2008, full redemption is not likely to be complete until the end of 2010.”

Best said it does anticipate an improvement in the “syndicate’s combined ratio in 2009 from the 97 percent achieved in 2008, supported by rate increases for most classes of business written and a reduction in attritional losses. In addition, the syndicate carries prudent reserves.” As a result Best said it “believes there is a sufficient, although reduced, margin to support future releases.

“At a group level, there has been a pattern of increasing prior year redundancies since 2004, culminating in a net release of £49.3 million [$79.78 million] during 2008. This amount includes a one-off release of £11.8 million [$19.1 million], due to changes in the syndicate’s reserving methodology.”

Best also said it “believes the syndicate’s business profile within Lloyd’s is supported by the franchise of the Chaucer group. CSL offers a diverse range of services within the Lloyd’s market. In addition to the management of in-house syndicates 1084 and 1176, which are supported by Chaucer capital, CSL manages syndicates supported by third party capital, offers a turnkey operation to new market entrants and provides run-off management.

“An offsetting factor is the uncertainty surrounding the future management of CHP following the announced retirement of its chief executive officer, and the future structure of the group’s ownership in view of Pamplona Capital Management, LLP’s intention to purchase a 29.9 percent stake.”

Source: A.M. best – www.ambest.com