Lloyd’s outlook revised to negative on hurricane losses: S&P

S&P Global Ratings said on Oct. 12 that it revised its outlook for Lloyd's to negative from stable.

Lloyd's had announced an estimate of net losses of £3.3 billion from hurricanes Harvey and Irma.

Moody’s has said that it expects that the combination of the three major hurricanes Harvey, Irma and Maria will drive an overall pre-tax loss for the Lloyd’s market for 2017.

S&P also expects further major losses from hurricane Maria and other potential catastrophe events in the fourth quarter of 2017. These losses are significant relative to peers and Lloyd's annual earnings, and emphasise the market's exposure to catastrophe risk, according to the ratings agency.

Lloyd's capitalization in S&P’s model had already deteriorated over 2016-2017 due to higher catastrophe exposure and premium growth, the latter in part due to foreign exchange movements, S&P noted.

Expense and attritional loss ratios remained high in the first half of 2017, while the effect of reserve releases on the result, although still positive, is diminishing. Lloyd's management will require members to inject more capital into their market operations as part of the "coming into line" exercise in late 2017, before business plans for 2018 can be approved. Stronger rates in the wake of the hurricane losses could also help the market's results in 2018 and further rebuild capital. S&P believes that the market is likely to be able to restore its capitalization do deserve the 'AAA' level that would be consistent with maintaining an 'A+' rating overall.

However, S&P noted that significant uncertainties remain, including potential further major losses, a weaker-than-anticipated rate recovery, or members choosing to take advantage of rate revivals outside of their Lloyd's platforms.

The negative outlook reflects S&P’s expectation that the market will produce a combined (loss and expense) ratio of about 95 percent in 2018-2019. The ratings agency envisages a modest revival in rates and assumes normalized catastrophe losses.

At the same time, S&P affirmed its 'A+' insurer financial strength and long-term counterparty credit ratings on Lloyd's.

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