21 October 2013

Lloyd’s upgrade looks increasingly likely

The potential upgrade of the Lloyd’s market to the double-A level would make it an even more attractive option for insurers which would otherwise not be able to achieve a rating of this level.

Rating agencies Standard & Poor’s, AM Best and Fitch all have the market on outlook positive and Stuart Shipperlee, analytical partner for Litmus Analysis, believes an upgrade will follow.

“We think it’s probable that Lloyd’s will be upgraded into the double-A range within a 12 to 18 month timeframe,” he said. “The significance of that is many of the participants at the Lloyd‘s market wouldn’t have the scale or the diversification or necessarily the capital base to get an double-A rating on their own.”

A double-A rating for Lloyd’s would make that double-A rated paper available to any organisation able to persuade the Lloyd’s Franchise Board to let them enter the market.

“We think that the Lloyd’s platform might become very attractive if this rating change takes place,” he said. “It’s quite attractive already but it would become more so. The other side of that is that Lloyd’s manages very carefully who participates partly to maintain its credit rating. Nonetheless we do think it could be a very significant change for potential participants in Lloyd’s.”

He believes a higher rating for Lloyd’s would attract the interest of reinsurance and specialty lines players rated in the single-A range now with no Lloyd’s platform at present.

“There are some parts of the market that like to use double-A paper. If a company rated in the single-A range could get to that level through Lloyd’s that would might be interesting,” he said.