The recent $7bn reinsurance agreement between National Indemnity and Equitas will increase the chances of an enhanced competitive position for Lloyd's, according to Standard & Poor's.
"Without the drag of Equitas and the prospect of much improved business administrative processes, Lloyd's existing competitive strengths would come into starker relief," said Standard & Poor's credit analyst Marcus Rivaldi.
Standard & Poor's would certainly expect this to have a positive impact on the long-term operating performance of existing Lloyd's franchisees, and it may also give increasing precedence to the market as the preferred European destination for organisations considering expansion overseas, possibly via M&A.
The improvement in competitive strength could also have an impact on other key trends at Lloyd's, according to the agency. The recent moves to Bermuda by certain franchisees have in part been driven by a desire to diversify their operations and reduce their reliance on the Market. This rationale still makes sense, and Standard & Poor's believes others will join the likes of Catlin, Amlin, and Hiscox in the move to Bermuda.
"If well executed, this could provide an alternative route for a business to strengthen itself through enhanced portfolio diversification. The recent announcement by Catlin that it is in discussions regarding a potential cash and shares offer for Wellington Underwriting PLC may be only the first of such deals," said Rivaldi.
The report is entitled, “As the shadow of Equitas recedes, interesting times potentially lie ahead for the Lloyd's insurance market”.
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