Lloyd's Canopius faces downgrade due to sale

Syndicate Research Limited (SRL) has placed Lloyd's syndicate 4444 (Canopius Managing Agents Limited) under review for possible downgrade after confirmation that Sompo Canopius is due to be  acquired by a private equity consortium led by Centerbridge Partners in the first quarter of 2018.

Sompo Japan Nipponkoa Insurance is in the process of selling Sompo Canopius for $952 million.

Syndicate 4444’s B+^ (Above Average) Continuity Opinion is likely to be downgraded to B^ (Average) with stable outlook should the sale proceed as planned.

Syndicate 4444 recorded a profit of 1 percent of net premium earned (NPE) on an annually accounted basis for 2016 on a combined ratio of 100 percent (including forex). SRL stated that, in terms of reported results, on a cross-cycle basis, syndicate 4444 had recorded average profits of 6 percent of NPE for 2008 to 2016 under annual accounting.

SRL commented that syndicate 4444’s B+^ (Above Average) Continuity Opinion currently reflected the benefit of group support from Sompo, with the syndicate’s Continuity Opinion considered to be in the B+ peer group after consideration of group support.

However, with a management buy-out and with syndicate 4444’s indicative average returns on capital on a cross-cycle basis in line with the B (Average) peer group on a stand-alone basis, SRL believes that the syndicate’s Continuity Opinion is likely to be better positioned at the top of the B (Average) peer group should the operation be sold by the group as planned.

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