Ratings agency highlights positives within the Lloyd's market but raises questions about possible market downturn

The policyholder security in relation to syndicates currently trading at Lloyd’s has improved in the past year from an already good basis, says Moody’s in a new report, which also says good things about Lloyd’s senior management. But questions are raised about Lloyd’s ability to deal with a potential downturn.

Increased central assets, declining calls on the central fund and the effective resolution of Equitas have all enhanced the minimum security offered by Lloyd’s for all syndicates argues the ratings agency.

But what does this mean for Lloyd’s? “Lloyd's remains an effective and attractive trading platform to most entities”, says Robert Smith, Moody’s senior analyst and author of the report.

Smith highlights the old argument surrounding the advantages of the oldest insurance market continually outweighing the negatives. “Lloyd’s global franchise, access to diversified business and its reduced capital requirements offset disadvantages such as the potential for additional costs due to mutuality, the need to improve efficiency, and applicable UK tax rates,” he says.

Moody’s has plenty of positives to highlight on Lloyd’s current senior management front, overall, it must be said, with some justification. The ratings agency notes that the management has had a good track record in addressing many of the long-standing issues facing Lloyds. That is very true. Remember all the hullabaloo over contract certainty? Yet it’s no longer on the radar given the speed of which the market has dealt with the issue, albeit after a forceful push from the FSA.

Moody’s also believes there has been a significant improvement in the levels of management expertise and sophistication of management controls since the last insurance downturn. A fair point. But the big test will be how Richard Ward reacts in a time of crisis. As he identified himself in the Insurance Times Lloyd’s Guide published in April this year, he considers himself a lucky man coming into Lloyd’s as CEO at the time he has.

But for Moody’s, the Lloyd’s Franchise Performance Directorate is likely to be able to curtail the extent of the losses seen during previous downturns. The ratings agency nevertheless acknowledges it remains to be seen how Lloyd’s new procedures and revised membership profile perform during their ultimate test at the next low point in the insurance cycle.

There is no doubt that returns on equity over the period since 2001 have been excellent. Although Moody’s cautions that these years represent the highpoint of the insurance cycle. So is it down hill from here for Lloyd’s? The policyholder security in relation to syndicates currently trading at Lloyd’s has improved materially in the past year from an already good basis, says Moody’s in a new report, which also says good things about Lloyd’s senior management. But questions are raised about Lloyd’s ability to deal with a potential downturn.

Increased central assets, declining calls on the central fund and the effective resolution of Equitas have all enhanced the minimum security offered by Lloyd’s for all syndicates argues the ratings agency.

No doubt. But what does this mean for Lloyd’s? “Lloyd's remains an effective and attractive trading platform to most entities”, says Robert Smith, Moody’s senior analyst and author of the report.

Smith highlights the old argument surrounding the advantages of the oldest insurance market continually outweighing the negatives. “Lloyd’s global franchise, access to diversified business and its reduced capital requirements offset disadvantages such as the potential for additional costs due to mutuality, the need to improve efficiency, and applicable UK tax rates,” he says.

Moody’s has plenty of positives to highlight on Lloyd’s current senior management front, overall, it must be said, with some justification. The ratings agency notes that the management has had a good track record in addressing many of the long-standing issues facing Lloyds. That is very true. Remember all the hullabaloo over contract certainty? Yet it’s no longer on the radar given the speed of which the market has dealt with the issue, albeit after a forceful push from the FSA.

Moody’s also believes there has been a significant improvement in the levels of management expertise and sophistication of management controls since the last insurance downturn. A fair point. But the big test will be how Richard Ward reacts in a time of crisis. As he identified himself in the Insurance Times Lloyd’s Guide published in April this year, he considers himself a lucky man coming into Lloyd’s as CEO at the time he has.

But for Moody’s, the Lloyd’s Franchise Performance Directorate is likely to be able to curtail the extent of the losses seen during previous downturns. The ratings agency nevertheless acknowledges it remains to be seen how Lloyd’s new procedures and revised membership profile perform during their ultimate test at the next low point in the insurance cycle.

There is no doubt that returns on equity over the period since 2001 have been excellent. Although Moody’s cautions that these years represent the highpoint of the insurance cycle. So is it down hill from here for Lloyd’s?