April 23, 2007 by Canadian Underwriter
Standard & Poor’s Ratings Services increased its financial strength rating on the U.K.-based Lloyd’s insurance market (Lloyd’s or the Market) to ‘A+’ from ‘A.’
At the same time, Standard & Poor’s raised its counterparty credit rating on The Society of Lloyd’s to ‘A+’ from ‘A.’ The outlook is stable.
“The upgrade reflects the recent successful conclusion of Phase 1 of the Equitas group’s transaction with National Indemnity Co., progress with regard to Phase 2, and the unstoppable momentum behind improving London Market business processes,” Standard & Poor’s credit analyst Rob Jones said in a statement.
In the Equitas transaction, National Indemnity Co. (NICO; AAA/Stable/–) will provide up to 3.8 billion (US$7.0 billion) of reinsurance for the Equitas group’s (Equitas) loss reserves, rendering the likelihood of a future Equitas deficit and any related contribution from Lloyd’s remote, says Standard & Poors. Phase 1 involves a 3.1 billion reinsurance, and Phase 2 involves a novation of liabilities from Lloyd’s members to Equitas and the provision of a further 0.7 billion of reinsurance.
Standard & Poors says its ratings reflect Lloyd’s strong competitive position, strong operating performance, strong capitalization, and strong financial flexibility.
The ratings agency said these positive factors are partly offset, however, by relatively high reinsurance reliance and continuing operating performance volatility. The consistency and effectiveness of strengthened catastrophe risk controls are also yet to be tested.
Standard & Poors said its stable outlook reflects certain assumptions, including:
n Subject to normal catastrophe loss experience for 2007, Lloyd’s will post a combined ratio below 95% and ROR greater than 12%.
n Performance will weaken in 2008 in line with an anticipated continuing softening operating environment.