Lloyd’s has been rewarded with a rating upgrade following the successful deal that passes its run-off vehicle Equitas to Berkshire Hathaway’s National Indemnity unit.
Credit agency Fitch has upgraded Lloyd's insurer financial strength ('IFS') rating by one notch to A+, and has upgraded the subordinated debt issue rating by one notch to ‘A-’ (A minus). The ratings have been assigned stable outlooks.
The rating action follows the confirmation that Nebraska-based Berkshire Hathaway and Equitas - the vehicle established to reinsure and run-off the 1992 and prior-years' liabilities of Lloyd's members - have finalised the transaction announced in October 2006.
Although the upgrade is based largely on the completion of the Berkshire transaction, Fitch also notes the progress that Lloyd’s has made in reforming the market’s operating practices and managing underwriting exposures.
Lloyd’s Chairman Lord Levene said: "The successful completion of Phase I of the Equitas deal is a credit to all involved. It is a significant step towards closing a chapter in our history and puts Lloyd's in a strong position going forward. We look forward to working with Equitas on the second phase of the deal."
Commenting on the upgrade, Lloyd’s CEO Richard Ward said: “"This upgrade is great news for the Lloyd's market. The successful completion of Phase I of the Equitas deal obviously played a significant part in Fitch's decision but the upgrade also reflects our ongoing work to improve and strengthen Lloyd's financial position, brand and licences."
Under the terms of the deal, Berkshire will reinsure all of Equitas’ liabilities and provide up to $5.7bn in reinsurance protection above Equitas’ current reserves.
In addition to reinsurance cover, Berkshire will take on the staff, operations and management of the run-off of Equitas. As part of the transaction, Equitas paid Berkshire £358m, of which Lloyd's contributed £72m.
The relationship between Equitas and Berkshire will now proceed to a second phase, which would involve the transfer of Lloyd's members' pre-1993 liabilities into Equitas or a UK-based subsidiary of Berkshire, and the provision of additional reinsurance protection of up to $1.3bn.
