Lloyd’s rating stable, despite Katrina losses

Fitch Ratings, the international rating agency, believes the US$2.55 billion provisional estimate of net losses arising from Hurricane Katrina recently announced by Lloyd’s is within current rating expectations.
As a result, “there is no immediate impact on Lloyd’s ratings,” Fitch says in a statement.
Although Lloyd’s specific syndicates did not model Hurricane Katrina’s flood-related losses, Fitch noted, the preliminary estimate of the net market loss is within Fitch’s expectations for Lloyd’s exposure to a Gulf of Mexico windstorm.
The levee breach in New Orleans, expected widespread business interruption losses, looting losses, possible environmental claims, limited access to affected areas, and the high risk of coverage disputes make it very difficult for Lloyd’s syndicates and other insurers to accurately estimate losses from Hurricane Katrina at this time, Fitch said.
The rating agency said it will “maintain a close dialogue with Lloyd’s over the coming weeks and months to monitor gross and net exposure to the event.”
Fitch expressed caution that although the preliminary estimate of Lloyd’s aggregate loss from Hurricane Katrina is within rating expectations, there may be some concentration of this loss among individual Lloyd’s syndicates. “In view of Lloyd’s unique capital structure, the possible concentration of losses would be a concern to Fitch,” the company said, “especially if this results in substantial calls on the Central Fund.”
Fitch said it “takes comfort from Lloyd’s statement that, based on current information, it believes any impact of Hurricane Katrina on the Central Fund will be immaterial.”
Further major catastrophe losses recorded in the remaining three months of 2005, or a significant increase in Lloyd’s Hurricane Katrina loss estimate could further affect earnings and reduce Lloyd’s capital adequacy, the rating agency noted: “These developments would have potential negative rating implications.”