Standard & Poor's assessments pick ten underperformers

High losses and soft market conditions from before 2001 took their toll on ten Lloyd's syndicates, that have been downgraded by ratings agency Standard & Poor's.

The agency assesses how heavily every syndicate relies on the market's central fund, the safety net that protects policyholders if a syndicate goes bust.

Last week, it lowered its assessments on ten syndicates and raised them on just two.

The changes reflected poor performances over the four closed underwriting years to 2000 and the 2001 open year.

The downbeat changes were in sharp contrast to the burgeoning profit announcements from the market's leading players for the first half of this year.

They were a stark reminder of the vulnerability faced by many Lloyd's insurers to losses racked up in the soft market cycle that was ending when the terrorist attacks took place on the World Trade Centre in New York and on the Pentagon building in Washington in 2001.

The syndicates to be lowered were u GoshawK Syndicate 102

  • KGM Syndicate 260
  • RJ Kiln Syndicate 308
  • Brit Syndicate 389
  • Faraday Syndicate 435
  • Munich Re Syndicate,
  • SVB Syndicate 1007
  • XL Syndicate 1209
  • Catlin Syndicate 2003
  • ACE Syndicate 2488.
  • The syndicates to have their assessments lowered represent 17.5% of Lloyd's total capacity.

    The two to be raised were Atrium Underwriting Syndicate 609 and Wellington's Syndicate 2020, both of which were assessed as having a "low dependency" on Lloyd's.

    All the assessments were based on publicly available information.

    Standard & Poor's credit analyst Kevin Willis said: "Despite the apparent rise in the level of dependence on the Lloyd's infrastructure, the immediate future bodes increasingly well for Lloyd's syndicates, with a strong cyclical uplift for 2002 - 2003 feeding expectations for improved results in key lines of Lloyd's business."

    The cyclical nature of the insurance market is recognised in the assessment process, so that assessments reflect an assumption that syndicates will perform better during an upswing.

    There are ten syndicates with the lowest assessment score of 1, which indicates "very high dependency" on the Lloyd's infrastructure.

    None has the highest assessment of 5, which indicates "very low dependency".

    Willis said: "While the forecast profitability for many syndicates for 2002 is impressive and is partly reflected in the Lloyd's syndicate assessments (LSA), the overall profitability of prior years continues to depress LSAs.

    "Going forward, Standard & Poor's expects that assessments will show some improvement in subsequent releases as forecasts are turned into closed year profits."

  • Lloyd's syndicate assessment (LSA) is the degree to which a Lloyd's syndicate is dependent on the Lloyd's central fund, brand, international licensing agreements, infrastructure, and, ultimately, on the Lloyd's insurer financial strength rating.