B.Financial riskThe focus of financial risk management for the Syndicate is ensuring that the proceeds from its financial assets are sufficient to fund the obligations arising from its insurance contracts. The goal of the investment management process is to optimise the risk-adjusted investment income and risk-adjusted total return by investing in a diversified portfolio of securities, whilst ensuring that the assets and liabilities are managed on a cash flow and duration matching basis.
a.Credit risk
Credit risk is the risk of financial change in value due to actual credit losses deviating from expected credit losses due to the failure of another party to meet its contractual debt obligations to the Syndicate.
The Syndicate is exposed to credit risk in respect of the following:
•Debt securities and derivative financial instruments;
•Reinsurers’ share of claims outstanding;
•Amounts due from intermediaries;
•Amounts due from reinsurers in respect of settled claims;
•Cash and cash equivalents; and
•Other debtors and accrued interest.
The Syndicate’s credit risk in respect of debt securities is managed by placing limits on its exposure to a single counterparty, by reference to the credit rating of the counterparty, rated no lower than BB by a recognised ECAI.
The Syndicate’s exposure to intermediaries and reinsurance counterparties is continually monitored to ensure they meet minimum credit quality requirements established by the Syndicate.
i.Exposure to credit risk
The carrying amount of financial assets and reinsurance assets represents the maximum credit risk exposure. The Syndicate does not hold any collateral as security or purchase any credit enhancements (such as guarantees, credit derivatives and netting arrangements that do not qualify for offset).
Maximum Credit Exposure
It is the Syndicate’s policy to maintain accurate and consistent risk ratings across its credit risk portfolio. This enables management to focus on the applicable risks and comparison of credit exposures. During the year, the portfolio’s average credit rating has not fallen below the required minimum.
Over 2025, the estimated change in the fair value of financial instruments through profit and loss attributable to changes in credit ratings was a marginal decrease of £0.1m (2024: £0.2m increase).
Collateral
Credit Risk is also mitigated by entering into collateral agreements. At 31 December 2025, the Syndicate held collateral in the form of letters of credit of £14.6m as on-balance sheet assets (2024: £18.4m) and £15.3m pledged assets (2024: £16.2m) as off-balance sheet assets.
The following table analyses the credit rating by investment grade of financial investments, debt securities and derivative financial instruments, reinsurers’ share of claims outstanding, amount due from intermediaries, amounts due from reinsurers in respect of settled claims, cash and cash equivalents, and other debtors and accrued interest.
