Asbestosis claims could hamper Lloyd’s, rating agency worries

Rating agency A.M. Best is continuing its "negative outlook" on Lloyd’s, despite affirming the insurance giant’s financial strength rating of A (excellent). The rating applies to business underwritten by all Lloyd’s syndicates and to policies underwritten since the 1993 year of account, but not to the obligations of Equitas Ltd. However, it is the potential shortfall in Equitas reserves as a result of asbestosis claims that leads to the negative outlook, states a press release from the rating agency.
The outlook is pending the release of Equitas annual financial figures (for yearend March 31, 2001) which are expected in late July. At that time, A.M. Best says it will review Lloyd’s rating, noting that the market could be expected by regulators to meet any shortfall in Equitas reserves, although Lloyd’s is not legally responsible to do so. While Equitas is expected to be a long-term factor in Lloyd’s ratings, A.M. Best does note that "Lloyd’s improving financial flexibility provides comfort that the market could respond to a range of potential adverse developments in the Equitas balance sheet.
The rating agency credits Lloyd’s with improved prospective underwriting performance and improved forecasting, and observes a 10% increase in underwriting capacity this year for the market. In affirming the "excellent" rating, it is noted that Lloyd’s has improved its management processes, including stronger regulatory control, and benefits from a strong brand and global licenses. Despite the worse than expected underwriting results predicted to show up in 1999 Lloyd’s figures, "A.M. Best expects continued hardening of premium rates which, provided an average loss experience, will lead to a profitable 2002 year of account", states the press release.