Worse exposure to Hurricane Ike worries ratings agency
Standard & Poor's has revised its Lloyd's Syndicate Assessment outlook on Advent Underwriting Syndicate 0780 to stable from positive. The assessment of 2 (high dependency) was affirmed.
"The outlook revision reflects the recent announcement of material deterioration in estimated losses arising from Hurricane Ike, which will in turn lead to a loss on both an underwriting and net income level for the full year 2008," said Standard & Poor's credit analyst Eoin Naughton.
S&P said: “During January 2009, the syndicate reported that claims relating to Hurricane Ike had increased to £42m from an initial estimate of £15m. The size of the increase in loss estimates raises concerns that the reduction in risk retained by the syndicate since the large losses experienced in 2005, upon which positive movement in the assessment is dependent, is yet to have a beneficial impact on the reduction in volatility of earnings. In addition, the size of the loss with respect to the syndicate's risk tolerance and modelled losses and the failure of the reinsurance program to mitigate the loss to a greater extent raises concerns regarding the syndicate's catastrophe risk exposure management.”
"We expect that the syndicate will maintain strong capitalisation and an adequate competitive position, but with below-average operating performance," said Naughton.
S&P said the outlook would be revised to negative if the syndicate continues to suffer outsized losses relative to peers, or if the losses on the 2008 hurricanes were to continue to deteriorate to such an extent that this causes a material deterioration in capital adequacy. Positive movement in the assessment is not anticipated in the near term.
