S&P’s decision to upgrade Lloyd’s to “A+” reflects more than just the Equitas deal...
Standard & Poor’s decision to upgrade Lloyd’s to “A+” “is a vote of confidence in all that Lloyd’s has done,” said Andrew Hubbard, head of insurance at Mazar’s.
On 23 April, S&P raised Lloyd’s insurer financial strength rating to “A+” from “A” with a stable outlook. S&P analyst Rob Jones commented: “The upgrade reflects the recent successful conclusion of phase 1 of the Equitas group’s transaction with National Indemnity, progress with regard to phase 2 and the unstoppable momentum behind improving London market business provesses.”
Standard & Poor’s is the second rating agency after Fitch to have adjusted lloyd’s financial rating based on news of the equitas transaction. The deal means National Indemnity will provide up to £3.8bn ($7bn) of reinsurance for the Equitas group’s loss reserves, which renders the likelihood of a future Equitas deficit and any related contribution from Lloyd’s unlikely.
Nigel Hanbury, chief executive of Hampden Agencies, an adviser to private investors at Lloyd’s, commented: “Lloyd’s improved trading status and capitalisation have been apparent for a number of years but the rating agencies have been concerned with the overhang over the Equitas affair. Now they have recognised that the completion of the first stage of the Equitas deal will bring an end to the residual legal liabilities on the future market.”
Lloyd’s chief executive Richard Ward added: “S&P’s decision to upgrade the market to “A+” is another significant achievement for Lloyd’s. It recognizes the progress that Lloyd’s has made over the last six years, particularly in the areas of financial strength and security and business process reform.”
“The improved rating... is a vote of confidence in all that Lloyd's has done and is doing to improve efficiency
Andrew Hubbard, head of insurance at Mazars
However the upgrade reflects a wider picture, as Andrew Hubbard emphasised. “The improved rating is not just down to the Equitas deal with National Indemnity, helpful as that is, but is a vote of confidence in all that Lloyd’s has doneand is doing to improve efficiency and instil discipline and professionalism into the market.”
The ratings also reflect Lloyd’s strong competitive position. 2006 was a successful year, with profits bulging to £3.7bn. Having been at the helm for a year now, chief executive Richard Ward has seen the market achieve increased confidence through its contract certainty success as well as new offices in markets such as China, where Lloyd’s is striving to modernise from the outset by using technology platform RI3K and Xchanging to automate its processes.
Looking ahead, there is still much to do to ensure that the market remains competitive. The continued march to automation is progressing slowly, and the market still suffers from higher costs of doing business than in competing jurisdictions, one of the reasons behind the recent redomiciliation of some syndicates to Bermuda.
Despite Gordon Brown’s announcement of a basic UK corporation tax cut of 2% last month, Lloyd’s chairman Lord Levene continues to argue for further reductions.