S&P Changes Lloyd’s A+ Rating Outlook to ‘Stable’ from ‘Negative’

On Friday, S&P Global Ratings announced that the rating agency revised the outlook on its ratings on Lloyd’s, the Society of Lloyd’s, and its core subsidiaries to stable from negative, also affirming the issuer credit and financial strength ratings on these entities at ‘A+’.

“[U]nder its new leadership team, the London-based Lloyd’s insurance market has taken the necessary steps to improve its overall underwriting performance,” S&P explaining the rationale for the outlook change. S&P noted that Lloyd’s, in its annual “coming into line” process in 2018—the process whereby Lloyd’s reviews and approves syndicates’ business plans—Lloyd’s performance management division took steps to remediate some of the worst-performing business in the market.

Rationale:

Lloyd’s has taken steps to remediate its portfolio should ensure that underwriting performance improves in 2019-2021.
Management took actions to bring Lloyd’s catastrophe exposure back within its risk appetite.
After reporting over £3 billion of losses in the past two years, Lloyd’s strengthened its capital adequacy—with levels expected to higher than S&P’s ‘AA’ confidence level over the next three years.

S&P also noted that even though Lloyd’s recorded a loss of £2.0 billion in 2017, it has since steadily rebuilt its capital position. In fact, Lloyd’s “now holds a considerable excess above the ‘AA’ confidence level” in S&P’s risk-based capital model, the rating agency said.

S&P expects Lloyd’s capital adequacy to strengthen further in 2019 as the market’s net premium written shrinks and Lloyd’s continues to exercise strong control over exposure to catastrophe risk.

S&P, under its base-case scenario, is also assuming that the market will see premium rates increase, particularly in loss-affected lines, in 2019, and forecasts combined ratios of 95-99 in 2019-2021.

“The stable outlook signifies that we expect management to continue to focus on Lloyd’s underwriting performance and to address its overall cost structure, which has hindered the market over the years,” S&P said in the rating announcement.

Source: S&P Global Ratings