Standard & Poor's (S&P) has affirmed the 'A' long-term insurer financial strength rating for the Lloyd's insurance market. The outlook is stable.
“The rating reflects the ongoing commitment of capital providers to the market and the consequent increase in funds at Lloyd's in 2004; the maintenance of Lloyd's strong business position; and the likelihood of the continuation in 2004 and 2005 of the strong operating performance seen in 2003,” said S&P credit analyst Stephen Searby.
S&P said the positive factors were partly offset by the several nature of the majority of Lloyd's capital base; the market's contingent exposure to Equitas; and the volatile historical returns experienced by many capital providers prior to 2002.
The stable outlook is based on:
·
The main capital providers remaining committed to the market, although there will be a decline in capacity possibly as early as 2005 consistent with prudent management of the underwriting cycle.
· No material deterioration in the solvency of Equitas in the short term. In the medium term, Standard & Poor's considers that the impact of any capital deficiency at Equitas would be manageable by Lloyd's.
· The Central Fund remaining at or near its year-end 2003 level.
· Barring a large catastrophe in the second half of 2004, profits on a pro forma annual accounting basis exceeding those of 2003 with a combined ratio in the range of 87%-90% and pretax profit, which will be impacted by lower investment returns, in the range of £1.8-£2.2 billion.
· The Franchise Performance Directorate remaining proactive in guiding the Market over the next few years. However, tangible evidence of the effectiveness of the franchise structure at a Market level will not be apparent until 2006 at the earliest.
· Material progress before 2006 with business process reform with, in particular, improvements in policy production and claims handling.
