Lloyd’s Rating Changed by DCR

April 6, 2000

Duff and Phelps Credit Rating Co. (DCR) announced that it is modifying the A+ claims paying ability rating of the Lloyd’s market from “Stable” to “Developing.”

“The change in Outlook follows Lloyd’s announcement of results for the recently closed 1997 year of account and DCR’s view that it is increasingly likely that the Lloyd’s rating will be either upgraded or downgraded over the next12 to 18 months,” said the announcement.

DCR noted that the £420 million ($666.5 million) loss posted in 1997 and the projected £725 million ($1.15 billion) for 1998 and the expected 1999 losses would be ” a major test in the coming 12 to 24 months.”

The change was undertaken with particular reference to the overwhelming presence of corporate capital as Lloyd’s chief financial underpinning.

Noting that these loss years, while not “inconsistent with historical patterns,” represent the first real test for the commitment of corporate capital to the Lloyd’s market.

“If, despite mounting losses, Lloyd’s is able to maintain its capacity commitments from corporate providers, DCR believes that Lloyd’s will have clearly demonstrated the long-term staying power of its franchise. Under such a scenario, as long as losses do not grow to levels that impact financial security measurements, DCR would likely upgrade Lloyd’s rating into the broader AA rating range,” the announcement said.

DCR indicated the other side of the coin would be to downgrade Lloyd’s rating if corporate capital begins to “retreat from the market.” On balance the adoption of the “Developing” label for Lloyd’s reflects the as yet unknown reaction of the large insurance companies and brokers, who now provide over 75 percent of its capital, to loss years, and whether they will continue to support the Lloyd’s market.

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