In affirming the “A-” (excellent) rating of Lloyd’s of London, rating agency A.M. Best says the outlook for the world’s oldest insurance market remains stable. Strong capitalization, stable investment returns and a new focus on risk management are all factors leading to the affirmation, says the rating agency. Noted is the strong relationship between Lloyd’s and its number-one market, the U.S., where surplus lines premium income jumped 21% last year. Lloyd’s has also grown its European business and “continues to benefit from its high profile global brand and network of licenses”. Lloyd’s also strengthened its capital base last year, with total financial resources up 23%, including a 46% increase in the market’s “central fund”. A.M. Best, however, is monitoring the exposure this central fund, which would pay out in the event of large losses, might have on large members. The market’s overall improved performance from 2002 to 2004 was also highlighted, with A.M. Best saying the market may even exceed its expected profit for 2002 of US$2.4 billion. “Lloyd’s continues to benefit from the strong upturn in market conditions that began in 2001 and maintains relatively stable investment returns. Syndicate investments largely comprise fixed income securities, and equities form a small part of investment portfolios at Lloyd’s.” The rating agency is also impressed with the market’s new commitment to risk management through its risk management division and franchise performance directorate (FPD). However, it notes that the FPD may not be as effective as Lloyd’s is predicting, including managing performance to pre-determined profit targets. Offsetting these factors is the albatross of Equitas, the corporation into which the general business insurance liabilities of Lloyd’s syndicates from 1992 and prior years have been reinsured. A.M. Best notes there is still uncertainty over whether Equitas’ reserves are sufficient.