London (1) London New York Robert S. Smith Allerton G. Smith Director Senior Director Moody's Analytics UK - Insurance Capital Markets Research Group Moody's Analytics Moody's Analytics JOURNALISTS: 44 20 7772 5456 JOURNALISTS: 212-553-0376 SUBSCRIBERS: 44 20 7772 5454 SUBSCRIBERS: 212-553-1653 Moody’s Analytics affirms the B (Average) Continuity Opinion of Lloyd’s Syndicate 0218; outlook changed to stable. LONDON, 21st July 2014 – Moody's Analytics (Moody’s) today affirmed the B (Average) Continuity Opinion of Lloyd's syndicate 0218 (ERS Syndicate Management Ltd) and changed the outlook from negative to stable in light of the syndicate’s improving open year position and the expectation of a reduced likelihood of any significant future reserve deteriorations. The syndicate, 67% backed by Aquiline Capital Partners & Macquarie Capital Group and with a 2014 capacity of £438m, writes a UK Motor account with an emphasis on specialist business. The syndicate has recently announced a loss of 13% of capacity for the 2011 account under 3-year accounting at 31.12.13. On an annually accounted basis, the syndicate has recorded a loss of 5% Net Premium Earned (NPE) for 2013 on a combined ratio of 108%. Moody’s stated that, in terms of reported results, on a cross-cycle basis the syndicate had recorded average losses of 10% of NPE for 2005 to 2013, performing in line with C+ (Below Average) continuity opinion benchmark returns in terms of indicative average annual returns on capital. The current agency open year mid-point forecasts are for a profit of 0.2% of capacity for the 2012 3-year account and a loss of 1.2% of capacity for the 2013 3-year account. Moody’s confirmed that it currently expected the existing, revised strategy being adopted by the syndicate in focusing the account primarily on niche or specialist business was likely to return the Motor account to profit in 2015 when the changes to the account and expense rationalisation were fully embedded. However, following material changes to reserving practices over the past few years, and in particular the adoption of more prudent reserving at a case reserve level, there remained uncertainty over the development of reserves. The ability to compare more recent year development patterns with prior years was further compounded by the revised allocation of service cost expenses. Moody’s stated that it still believed that there was the potential for material reserve deterioration to affect open year profitability for 2012 or 2013 but that any such deterioration was not expected to be significant and that this was not expected to be a feature for subsequent years. Moody’s continued that the syndicate still faced ongoing challenges in terms of the competitiveness of the UK Motor market, with renewed competition evident over the past year. However, with improved open year forecasts, an expectation of limited additional reserving adjustments and the syndicate expected to return to profitability in 2015, Moody’s has therefore affirmed syndicate 218’s B (Average) Continuity Opinion and changed its outlook to stable, reflecting Moody’s view of likely future relative performance and continuity prospects for the syndicate over the insurance cycle. The last action was in April 2013 when the syndicate’s B^ (Average), under review for possible downgrade, Continuity Opinion was affirmed and a negative outlook assigned. 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