A.M. Best Assigns Credit Ratings to Lloyds Insurance Company S.A.; Affirms Credit Ratings of Lloyds

A.M. Best has assigned a Financial Strength Rating (FSR) of A
(Excellent) and a Long-Term Issuer Credit Rating (Long-Term ICR) of “a+”
to Lloyd’s Insurance Company S.A. (Lloyd’s Brussels) (Belgium).
The outlook assigned to these Credit Ratings (ratings) is stable. At the
same time, A.M. Best has affirmed the FSR of A (Excellent) and the
Long-Term ICR of “a+” of Lloyd’s (United Kingdom) and Lloyd’s
Insurance Company (China) Limited (LICCL) (China). Additionally,
A.M. Best has affirmed the Long-Term ICR of “a” of Society of Lloyd’s
(the Society) (United Kingdom) and the Long-Term Issue Credit Ratings of
“a-” on the GBP 500 million 4.750% subordinated loan notes maturing 30
October 2024 and on the GBP 300 million 4.875% subordinated notes
maturing in 2047. The outlook of these Credit Ratings (ratings) remains
stable.

The ratings reflect Lloyd’s balance sheet strength, which A.M. Best
categorises as very strong, as well as its strong operating performance,
favourable business profile and appropriate enterprise risk management.

The Lloyd’s market benefits from its risk-adjusted capitalisation being
at the strongest level, as measured by Best’s Capital Adequacy Ratio
(BCAR). Capital adequacy is supported by a robust risk-based approach to
setting member-level capital and a strong Central Fund, which is
available to meet the policyholder obligations of all Lloyd’s members.
A.M. Best’s assessment of the balance sheet strength of Lloyd’s takes
into account the fungibility constraints of capital held at member level
and the market’s good financial flexibility, which is enhanced by the
diversity of its capital providers.

The market’s exposure to catastrophe risk is an offsetting factor.
However, the requirement for members to replenish their funds at Lloyd’s
to meet their current underwriting liabilities, as part of the “coming
into line” process, partly mitigates the potential for volatility in
risk-adjusted capitalisation due to operating losses. In spite of an
overall loss of GBP 2.0 billion in 2017, risk-adjusted capitalisation
was stable as member-level capital was replenished in line with
expectations. Consequently, no members subsequently became reliant on
the Central Fund.

The operating performance assessment reflects Lloyd’s long-term record
of strong technical performance. The five-year average combined ratio
for the Lloyd’s market is 96% (2013-2017), which includes an elevated
combined ratio of 114% for 2017. Catastrophe losses added 18.5 points to
the combined ratio in 2017 but this was not outside A.M. Best’s
expectations given the size of catastrophe events during the year. The
technical result also was affected by an increase in the accident-year
attritional loss ratio and a reduction in the level of reserve releases.
A.M. Best expects the market’s attritional loss ratio to improve in 2018
and 2019, supported by actions to improve performance taken by the
market’s central oversight function and by individual managing agents.

The favourable business profile assessment reflects the strong position
of Lloyd’s in its core markets, as a leading writer of reinsurance and
specialty property and casualty insurance. Lloyd’s has an excellent
brand in these markets but an increasingly difficult operating
environment poses challenges to Lloyd’s competitive position. The
market’s business mix is well-diversified but with some geographical
bias towards North America and product bias towards moderate to
high-risk commercial specialty lines products.

Lloyd’s Brussels is a wholly owned subsidiary of the Society that was
established in 2017 to ensure that Lloyd’s syndicates can continue to
write insurance business in European Union (EU) countries subsequent to
the U.K.’s exit from the EU. The ratings of Lloyd’s Brussels reflect
strong reinsurance support from Lloyd’s in the form of 100% quota share
contracts between Lloyd’s Brussels and Lloyd’s syndicates that
participate on the new Brussels platform.

The ratings of LICCL likewise reflect reinsurance support from Lloyd’s
in the form of quota share contracts between LICCL and syndicates
participating on Lloyd’s China platform.

The rating of the Society is notched from the rating of the Lloyd’s
market, reflecting the unique relationship between the Society and the
Lloyd’s market, which means that the ability of the Society to meet its
obligations is inextricably linked to the ability of Lloyd’s to meet its
obligations.

This press release relates to Credit Ratings that have been published
on A.M. Best’s website. For all rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please see A.M. Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and A.M. Best press releases, please view Guide
for Media – Proper Use of Best’s Credit Ratings and A.M. Best Rating
Action Press Releases.

A.M. Best is the world’s oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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