Standard & Poor's Ratings Services has announced the results of its latest Lloyd's Syndicate Assessment (LSA)review, which considered the 2004 syndicate reports and accounts published during the first quarter of 2005.
The positive trends in evidence during 2004 are reflected in the resultant changes in assessments, with seven LSAs raised nd none lowered. In addition, Standard & Poor's has assigned three new LSAs and withdrawn one. LSA coverage of the Lloyd's Market (Lloyd's; A/Stable) now stands at 83% of 2005 capacity.
Standard & Poor's LSAs evaluate syndicate continuity characteristics by measuring the dependency of syndicates on the Lloyd's Central Fund, brand, international licensing agreements, infrastructure, and, ultimately, on the insurer financial strength rating (FSR) on Lloyd's.
Standard & Poor's FSR on Lloyd's is the principal measure of financial strength to be applied to all syndicates underwriting in the Lloyd's Market.
"This is the first LSA review in the three years since the measures were first introduced in which no assessments have been lowered," said Standard & Poor's credit analyst Marcus Rivaldi. "Syndicate financial performance hasshown continued steady progress on previous years, reflecting favorable market conditions."
Positive trends reflected within the LSAs include strong operating performance, reduced reliance upon reinsurance, lower insurance debtor levels, and declining concern over prior-year reserves.
There are still no syndicates that qualify for an LSA of '5', which would indicate a high level of likely continuity. However, eight syndicates are now assessed at '4pi', compared with four when the assessments were first introduced in September 2002. Amlin Underwriting - Syndicate 2001 has been upgraded to '4pi' from '3pi'. There are currently 21 syndicates carrying an LSA of '3' (both 'pi' and interactive), which is the highest number since February 2003, and is up from 18 in October last year. For the assessments reflecting more questionable syndicate continuity prospects, there has been a fall in the number of syndicates assessed at '2' (both 'pi' and interactive) to seven from 10 in 2004, and those syndicates assessed at '1' now number 10, down from 13 in 2004.
The improvement is also apparent within the "static pool" of 34 syndicates that have been continuously assessed by Standard & Poor's since LSAs were first introduced in September 2002. An analysis of these indicatesthat the number of syndicates with an LSA of '1' or '2' peaked in 2003 at 14 (£2.0 billion {$3.6 billion} of 2003 year-of-account capacity) and has now declined to 10 (£1.1 billion of 2005 year-of-account capacity).
In addition, there is now the largest number of syndicates in the LSA '4' band within the static pool--seven, compared with four in 2003.
Three new assessments have been added at this review:
Imagine Underwriting – Syndicate 1923 ('3pi'); Argenta Syndicate Management – Syndicate 2121 ('1pi'); and Abacus - Syndicate 2525 ('1pi').
Assessments have been possible as these businesses now have a sufficient track record--a minimum of three closed years of account--to allow a meaningful opinion to be made.
Sixteen syndicates remain unassessed, accounting for 17% of the Market's 2005 capacity.
Standard & Poor's LSA of '2pi' on XL London Market - Syndicate 1209 has been withdrawn to eliminate possible confusion concerning the assignment of a 'pi' assessment to this part of the interactively rated XL Capital group.
The action should not be viewed as a negative opinion of the syndicate's continuity characteristics on the part of Standard & Poor's.
"LSAs are now in their fourth year and are gaining greater acceptance than ever before with brokers and clients as a way of differentiating between syndicates at Lloyd's," said Mr. Rivaldi. "By bringing the full review forward from the fourth quarter, as it was in previous years, to July this year, it is hoped they will prove even more topical and relevant for users."
For further information on how Standard & Poor's opinions on Lloyd's, The Society of Lloyd's, Lloyd's capital providers, and the syndicates interact,see "Credit FAQ: Lloyd's--Identifying The Market's Financial Strength,"
