The losses at Lloyd’s, actual and projected, were not deemed serious enough, as yet, to warrant any change in Lloyd’s A (Excellent) rating by A.M. Best. It affirmed Lloyd’s capital strength, based on the support of underwriters and the Central Fund, stating “…there is early evidence to suggest that the current forecast losses will not have a significant impact on the central resources of the Society in terms of eroding the Central Fund.”
The “negative rating outlook,” however reflects the losses for the years beginning in 1997 when Lloyd’s recently closed its books showing an overall loss of £176 million ($273 million). 1998 loss figures are projected at £725 million ($1.124 billion) and 1999 may top $1.5 billion. The Best announcement warned that if these figures are “materially exceeded,” it could trigger a downward revision in the rating, and further stated that this might well occur.
The announcement cited several other factors which went into the ratings calculation, notably Lloyd’s extremely conservative investment guidelines, “effectively constraining the matching of long-tail liabilities with similar length, higher yielding securities.”
It also noted the potential impact of negative publicity arising from the Jaffray case against Lloyd’s, which is currently being heard in a London courtroom. The charges made by over 200 “Names” accuse Lloyd’s management of fraud involving asbestos and pollution claims, which weren’t disclosed to potential investors. Best noted, however, that if Lloyd’s wins the case, which it expects to, it will end any future liabilities, and will enable Lloyd’s to collect additional debts.
The report also expressed confidence in the ongoing internal reforms Lloyd’s has undertaken to improve its forecasting capabilities, and the IUA/Lloyd’s Forum which is seeking ways to improve services and competitiveness in the London market. A.M. Best also predicted that over 85 percent of Lloyd’s capital will come from corporations by the year 2001.
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