S&P Lowers Ratings on Lloyd’s, Zurich- Puts 15 Others on Credit Watch/Negative

September 21, 2001

In the face of ever increasing loss assessments from insurers following the terrorist attacks in the U.S., Standard and Poor’s announced that it had downgraded Lloyd’s financial strength rating from “A+” to “A” and Zurich Insurance Co.’s counterparty credit and financial strength ratings from “AA+/Neg” to “AA.” It also put 15 insurance groups on CreditWatch with negative implications, and reaffirmed that status for two others.

The action was expected in light of the deteriorating financial condition of many insurance companies due to the escalating loss estimates, and follows S&P’s action on Tuesday when it downgraded Australian insurer QBE’s underwriting units (See IJ Website, Sept. 19).

‘”to date, leading insurers and reinsurers have accumulated net aggregate insured losses of $17.5 billion based on both confidential information provided to Standard & Poor’s and publicly available information,” said the announcement.”If claims-reporting trends of this catastrophe mirror those of other catastrophes, the total loss figure could rise significantly. Standard & Poor’s expects many companies to continue to revise loss estimates over the next several months as issues of insurability, coverage, and reinsurance protection become clearer. It is reasonable to expect that individual company estimates of net claims could increase substantially over that time.”

S&P indicated that the impact of losses from disaster claims, coupled with the deterioration in the value of equity investments due to the declines in global capital markets “could weaken the balance sheets of these companies enough to reduce ratings.”

In addition to the action announced concerning Lloyd’s and Zurich, S&P placed the following company groups, on its CreditWatch with negative implications:

Alea Group
ALM Brand Group
ARIG Group
Chubb Group
Hartford Group
Hannover Re Group
Liberty Mutual Group (except Keyport Life and Liberty Financial Cos. Inc.)
Markel Group
Partner Re Group
PMA Group
PXRE Group
Royal & Sun Alliance group
SCOR Group
St. Paul Companies Group
XL Capital Group (except XL Capital Assurance and XL Financial Insurance)

S&P reaffirmed that CNA Financial Group and Trenwick Group had already been placed on CreditWatch Negative.

The rating agency said it hopes to complete its review of most of the companies involved as quickly as possible, many within the next few weeks. It warned, however, that some situations, notably involving liability claims, could take up to three months or longer to properly evaluate and resolve.

In one positive note, S&P reiterated its previous opinion that insured losses would have to reach $50 billion before it “began to worry about a substantial number of insurers’ claims-paying ability being compromised.”|”snp, lowers, ratings, on, lloyd’s,, zurich-, puts, 15, others, on, credit, watch/negative

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