Lloyd’s Decreases 2005 Market Capacity; S&P Reports on Syndicates

February 2, 2005

Standard & Poor’s Ratings Services has published the first of its quarterly reports on the members and syndicates at Lloyd’s. The study follows confirmation that the world’s oldest insurance market would respond to pressure on premium rates by underwriting less business in 2005.

Capacity is expected to decrease between 8 and 9 percent from £14.9 billion ($28 billion – at current exchange rates) to £13.7 billion ($25.8 billion).

The lowered capacity attests to the strong hand of Lloyd’s CEO Nick Prettejohn, who has repeatedly indicated that syndicates would no longer be permitted to chase market share by increasing capacity while lowering rates. The decrease also signals that there have been no applications this year for “qualifying quota share” treaty business, which temporarily allows a syndicate to increase capacity through reinsurance. “Given current market conditions and the focus on delivering underwriting profit, it is a positive sign that there has been a decrease in capacity at this point in the insurance cycle,” Prettejohn told London’s Financial Times.

S&P said it has revised its “Lloyd’s Syndicate Assessments (LSAs)” on four syndicates, as well as assigning one new LSA. “Sixty-two syndicates are trading at Lloyd’s in 2005, compared with 66 syndicates in 2004,” indicated S&P credit analyst Matthew Day. “Of the 2004 peer group, 58 have continued trading into 2005, eight have ceased trading, and four new syndicates have been formed. In total, LSAs have been assigned to 44 of the 62 syndicates trading in 2005.”

The rating agency noted that these changes are partially reflected in the reduction of 2005 market capacity. “Capacity concentration continues to increase, with the largest 20 syndicates accounting for 79 percent, up from 77 percent in 2004,” Day continued. “For the same period, average 2005 syndicate capacity has decreased marginally by 2 percent to £221 million [$416 million] from a high of £227 million [$427 million], in 2004.”

S&P’s Report “Standard & Poor’s Lloyd’s Syndicate Assessments: January 2005 Review,” is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit analysis system, at: www.ratingsdirect.com.

Ratings information can also be found on Standard & Poor’s public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find Ratings, then Credit Ratings Search. Alternatively, call one of the following Standard & Poor’s numbers: London Ratings Desk (44) 20-7176-7400; London Press Office Hotline (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5916; or Moscow (7) 095-783-4017.

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