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Lloyd's Central Fund reform earns 'A' rating from AM Best

Lloyd's has today (12 August) had its financial strength rating upgraded to "A" (Excellent) from "A-" (Excellent) with a stable outlook by ratings agency AM Best.

The agency said the rating, which is now in line with Standard & Poor's "A" rating, reflected "Lloyd's improving prospective capitalisation, strong operating performance, its global reach and improvements in risk management".

But it said a "partially offsetting factor" was the corporation's exposure to long-term uncertainty relating to the adequacy of Equitas' reserves, although it added that Lloyd's was unlikely to be adversely affected by Equitas in the near term.

According to AM Best, a key reason for the upgrade is the likely increase in the Central Fund to £2bn between 2004 and 2008 , and it pointed to a "likely" reduction in underwriting capacity "if market conditions continue to deteriorate" as another positive factor.

It added: "The rating also reflects AM Best's expectation that growth of the Central Fund is unlikely to be materially affected by reserving issues relating to US casualty business written between 1997 and 2001."

On Lloyd's future performance, the agency noted: "In 2004, on an annually accounted basis, AM Best expects substantial earned premium derived from the 2003 underwriting year and continuing good market conditions for Lloyd's specialist classes to support a combined ratio close to the 2003 level of 89.2 percent and a profit before tax of approximately £1.9bn (subject to catastrophe experience in the second half of the year)."

It said a combined ratio of below 95 percent was likely to be achieved in 2005, despite a softening market.

Lloyd's welcomed the upgrade, with CEO Nick Prettejohn commenting: "I am delighted that AM Best has recognised and rewarded Lloyd's underlying financial strength and excellent prospects for the future. I am particularly pleased that AM Best has highlighted the significant progress we are making to ensure Lloyd's is consistently high-performing and financially resilient. The agency has recognised the industry-leading results we delivered in 2003, and expects further strong underlying performance this year."

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