Standard & Poor’s Launches New Lloyd’s Syndicate Analysis

Standard & Poor’s announced the launch of its Lloyd’s Syndicate Assessments (LSAs), “a new tool for analyzing the syndicates operating in the Lloyd’s of London Insurance Market.”

S&P described LSA’s as a method for determining the “dependency of individual Lloyd’s syndicates on Lloyd’s Central Fund, brand, international licensing agreements, and infrastructure.”

They involve both a “qualitative and quantitative analysis” which S&P acquires from publicly available information, therefore the designation “pi” for the assessments.

S&P assesses the syndicates strength, and then rates them on a scale ranging from “5pi,” the highest, to “1pi.” It characterized the five categories as follows, and gave the ratings for the 47 syndicates it has already assessed that represent 72% of Lloyd’s total market capacity for 2002:
 ‘5pi’ (very low dependency): 0 syndicates.
 ‘4pi’ (low dependency): 4 syndicates.
 ‘3pi’ (dependent): 25 syndicates.
 ‘2pi’ (high dependency): 9 syndicates.
 ‘1pi’ (very high dependency): 9 syndicates.

“The market has been calling for greater clarity in response to changes in the structure of Lloyd’s in recent years,” stated S&P’s credit analyst Kevin Willis. “LSAs address this need, with the assessments reflecting the diversity of syndicates within the Lloyd’s market.” He added, however that the overall single-‘A’ (strong) financial strength rating on Lloyd’s “remains the principal measure of financial strength applied to all Lloyd’s syndicates.”

S&P noted that no syndicate was assessed at ‘5pi’. “Although all syndicates are dependent on Lloyd’s to a greater or lesser extent, the fact that no syndicate achieved an assessment of ‘5pi’ (indicating very low dependency) reflects a sustained fall in underwriting earnings in recent years,” Willis stated.

The bulletin also noted that “Only two of the ‘4pi’ syndicates appear in the top 10 syndicates by capacity, reflecting past underperformance of many dedicated corporate capital provider-backed syndicates.” The rating agency noted, however that “many corporate capital providers have restructured their Lloyd’s operations to attain better performance,” which it found encouraging..

Based on past performance – a minimum of three closed tears of account is normal – S&P said it considers “six analytical categories: business position; operating performance; capital and ownership; outward reinsurance; reserves; and investments and liquidity. In total, 22 qualitative and quantitative factors are analyzed, with each factor carrying a fixed weighting depending on its relative importance. A score is assigned for each factor and an overall score is then derived for each syndicate.”

Copies of “Lloyd’s Syndicate Assessments,” which includes a full analysis of each syndicate assessed, is available to market participants from Standard & Poor’s, by contacting Sarah Thomas in London at (44) 20-7847-7024.

Topics Excess Surplus Lloyd's