Deteriorating underwriting performance leads to negative outlook on Lloyd’s
Fitch Ratings has revised its outlook on Lloyd's of London's and Lloyd's Insurance Company (China) to negative from stable because of concerns over the deterioration in underwriting performance, coupled with increasing exposure to catastrophe risk in against the backdrop of a soft market.
But Fitch has affirmed Lloyd’s Insurer Financial Strength (IFS) Ratings at 'AA-'. It has also revised the outlook for the Society of Lloyds to negative from stable while affirming its Long-Term Issuer Default Rating at 'A+'.
“The outlook has been revised to negative because of deterioration in underwriting performance, coupled with increasing exposure to catastrophe risk in the context of continuing pressure on both risk-adjusted premium rates and expense ratios at Lloyd's,” the rating agency said.
“The Fitch-calculated combined ratio of 98% was a significant deterioration from recent performance, driven by a return to more normalised levels of catastrophe activity in the market as well as increasing expenses and falling risk-adjusted premium rates.”
Fitch noted that Lloyd's exposure to worldwide natural and man-made catastrophes is higher than peers'. “This is reflected in Lloyd's combined ratio being more sensitive to catastrophic events. Fitch believes that exposure to catastrophe risk has increased in recent years despite declining margins on this line of business. However, Fitch believes that Lloyd's exposure management, through the group's modelling capabilities and the reinsurance in place, allows the market to mitigate tail risks to some extent,” it said.
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