(The following statement was released by the rating agency)
Dec 10 -
-- In our opinion, Syndicate 2999 has demonstrated a strong track record of profitability and growth and its competitive position has improved, following significant growth since 2000.
-- Moreover, the syndicate outperforms its peers in underwriting terms, as demonstrated by its lower-than-average five-year combined ratio.
-- Consequently, our view of the syndicate's financial and business risk profile has improved and, we are raising the Lloyd's Syndicate Assessment on Syndicate 2999 to '4' from '4-'.
-- The stable outlook reflects our expectation that Syndicate 2999's parent will continue to support it to write a highly diverse, predominantly short-tail account that will perform broadly in line with or better than the Market as a whole.
On Dec. 10, 2012, Standard & Poor's Ratings Services raised its Lloyd's Syndicate Assessment (LSA) on QBE Underwriting - Syndicate 2999 (Syndicate 2999, or the syndicate) to '4' from '4-'. The outlook is stable.
The assessment revision reflects our view of the syndicate's improved competitive position and its superior performance compared with its peers at the previous assessment level. The assessment also reflects the strength of the support provided to the syndicate as a strategically aligned member of Australia-based QBE Insurance Group Ltd. (QBE or the group; A/Negative/--; core operating subsidiaries are rated A+/Negative/--), as well as its strong enterprise risk management capabilities. These positive factors are partially offset by the syndicate's exposure to catastrophic events.
We consider Syndicate 2999's operating performance strong because it has outperformed its peers and the Market as a whole. Even though exposure to catastrophe losses caused the syndicate's combined ratio to deteriorate in 2011, its five-year average stands at approximately 88%, which is better than its immediate peers' and 4% lower than the five-year Market average. (Lower combined ratios indicate better profitability. A combined ratio of greater than 100% signifies an underwriting loss.) Including initial estimates regarding the impact of Hurricane Sandy, to which the syndicate is exposed, our base-case projection for the syndicate's operating results would be a combined ratio in the 93%-95% range for the full years 2012 and 2013, pretax profits of at least GBP80 million, and a return on revenue of 9%-12%.
We view Syndicate 2999's competitive position as strong and stable, benefiting from its leadership position, its size, and its well-diversified underwriting portfolio. The syndicate estimates that it leads more than 50% of the business it writes. The syndicate is one of the largest syndicates at Lloyd's and writes a highly diverse range of business through its five subsyndicates, which cover reinsurance, marine, liability, property, and aviation business. In 2011, the syndicate wrote gross premium of GBP1,115 million. This represented growth of 10% over 2010 and 6% above Lloyd's total market growth for the year. Net premium earned showed a similar trend and stood at GBP763 million, up from GBP686 million in 2010.
Syndicate 2999's strategy is closely aligned with that of QBE. It forms an integral part of the group's operation at Lloyd's, which we consider to be strategically important to QBE. The syndicate brings significant diversification benefits and underwriting expertise to the group. In turn, it benefits from QBE's infrastructure, capital resources, and financial flexibility as a large, publicly listed company that has an established global presence. The syndicate's dependence on Lloyd's has been reduced further because QBE's Lloyd's operation has been combined with that of the group's operations in Europe, integrating the teams.
We view the group's ERM, and consequently Syndicate 2999's ERM, as strong. The group applies its robust risk assessment framework at the divisional level. It continues to benefit from more-actively focusing on risk-return factors when making strategic decisions, underpinned by its thorough business planning regimen. The syndicate has robust underwriting risk controls and places significant emphasis on monitoring its aggregate exposure to large loss events, using a blend of its total sums at risk and estimates of its modeled probable maximum loss.
The stable outlook reflects our expectation that Syndicate 2999 will continue to be supported by QBE to write a highly diverse, predominantly short-tail account that will perform broadly in line with or better than the Market as a whole. We also anticipate that the syndicate will materially improve its bottom-line results and will return to a profitable result, achieving a combined ratio in the range of 93%-95%. Furthermore, we anticipate that QBE (the group) will remain committed to writing business through Syndicate 2999 and so will maintain the syndicate's scale and competitive position within the Lloyd's Market through 2012 and 2013.
The assessment could be raised were the syndicate able to materially outperform the Market across the cycle.
The assessment could be lowered, or the outlook revised to negative, were the syndicate to materially underperform the Market. Events leading to a change in our view of the status of the Lloyd's operation to QBE group would also likely place downward pressure on the assessment.
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit Portal.
-- Management And Corporate Strategy Of Insurers: Methodology And Assumptions, Jan. 20, 2011
-- Principles Of Credit Ratings, Feb. 16, 2011
-- Interactive Ratings Methodology, April 22, 2009
-- Group Methodology, April 22, 2009
-- Lloyd's Syndicate Assessment Methodology Revised In Light Of Lloyd's Market's Move To Annual Accounting, June 28, 2006
Lloyd's Syndicate Assessment Revised
QBE Underwriting - Syndicate 2999