Policyholder security at the majority of Lloyd's syndicates is better than it has been in over a decade, said Moody's.
It said the significant profits forecast for the 2002 to 2004 years of account and the improvements in management processes, along with increased capital requirements mean that Lloyd's should be able to avoid the worst of the losses seen in previous market downturns.
Moody's made the statement as part of a new special comment entitled: ‘Lloyd's of London: improved policyholder security and enhanced management processes'.
“The introduction of the franchise directorate, tasked with protecting Lloyd's central fund assets by ensuring that underwriting in the market is of a sufficient standard, has been a key element of market security since 2003,” said Robert Smith, vice-president and senior analyst, and author of the report.
“Additionally, proposals to change the nature of the current structure affecting policyholder security would, if introduced, increase the explicit mutuality of the market and bring significantly improved security for those trading with the weaker operating units in the market.”
But Moody's also said Lloyd's continues to face a number of challenges, including significant reinsurance receivables, continued pressure on the central fund from run-off syndicates and contingent exposure to Equitas.
With regard to underwriting margins for 2006 onwards, Moody's said it remains concerned over the extent of underwriting discipline that may be maintained by some of the weaker underwriting units.
But for Lloyd's as a whole, the franchise directorate should be able to curtail the extent of potential losses, it concluded.
