14 October 2014 Insurance

S&P revises Lloyd’s to stable

Rating agency Standard & Poor’s (S&P) has revised the outlook of Lloyd’s of London to stable from positive as conditions in the reinsurance sector deteriorate.

S&P added that Lloyd’s member syndicates, particularly the smaller ones, will face challenges in maintaining their pricing and market share.

In revising the outlook to stable from positive, S&P has indicated that an upgrade is unlikely in the next 12-24 months.

At the same time, the rating agency affirmed its 'A+' insurer financial strength rating on Lloyd's and its 'A+' long-term counterparty credit rating on The Society of Lloyd's.

“The competitive environment across the reinsurance sector as a whole and in Lloyd's key lines of business in particular, is increasingly unfavourable. Although the market's recent operating results have been strong, surplus capacity, the inflow of new capital, and changing buyer demand mean that we anticipate continued negative pressures on profitability and revenues in Lloyd's core business sectors: reinsurance and specialty lines.

“A number of smaller syndicates will face particular challenges in maintaining their market share, in our opinion. As a result, we consider an upgrade to be unlikely in the near future, and have therefore revised our outlook to stable.”

The rating agency said it continued to regard Lloyd's competitive position as very strong based on its franchise, strong diversification by line, and the loyalty of its policyholders. But it felt that the increased level of competition in the global market means that Lloyd’s will focus its efforts on defending its market position, particularly the market shares of its smaller, more narrowly focused managing agents.

“We consider Lloyd's Vision 2025 to be a positive step toward increasing its geographic diversification and expanding outside its traditional Anglosphere markets and capital providers. However, this effort remains very much a work in progress; we have seen limited additional diversification to date,” said the rating agency.

“In 2013, North American and UK risks accounted for 61 percent of Lloyd's premiums. Although broker facilities have not yet challenged its premium inflow, Lloyd's does remain relatively dependent on brokers for its distribution and many broker panels are consolidating and seeking single-capacity providers.”

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