What Determines Lloyd`s Market Syndicates` Unsolicited Ratings?

Abstract

Based upon a sample of Lloyd`s syndicates covering the years 2006-2010, we examine the determinants of (i) the likelihood of being rated and (ii) the rating that is likely to be assigned by Standard and Poor`s, from which we document evidence of selectivity bias. Larger, more profitable and liquid syndicates are found to be more likely to receive a rating, and indeed, to have higher ratings. Syndicates with more reinsurance dependence are more likely to be rated, but less likely to obtain a higher rating. Our findings indicate that the `signalling` hypothesis dominates the `uncertainty reduction` theory.