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Lloyd’s asks members hit by COVID-19 to recapitalise fast

8th April 2020 - Author: Luke Gallin

The specialist Lloyd’s of London insurance and reinsurance marketplace has reportedly asked members who have experienced sizeable losses as a result of the COVID-19 coronavirus pandemic to accelerate capital injections.

lloyd'sIn response, analysts at S&P Global Ratings have said that calling on certain Lloyd’s members to accelerate recapitalisation will ultimately help to stabilise the marketplace’s capital position.

Lloyd’s is exposed to the impacts from the coronavirus pandemic in both the investment and underwriting sides of its balance sheet. For now, analysts at S&P expect that current losses are contained to an earnings event, but warn that the specialist re/insurance market could experience more significant losses if the current pandemic continues for a larger part of the year.

Based on its risk-based model, S&P anticipates Lloyd’s capital adequacy will remain close to or above the rating agency’s ‘AA’ level over 2020 and shift back closer to its ‘AAA’ level in 2021.

S&P highlights that as at the end of 2019, Lloyd’s solvency ratio reached 156% on a market-wide basis and 238% on the central solvency basis.

Lloyd’s announced its full year 2019 results recently which included some commentary on the initial and potential implications for the market as a result of the COVID-19 challenges and uncertainty. This included the fact that from the end of 2019 to March 19th, 2020 its central solvency and coverage ratio had fallen to 205%.

S&P says that this was to be expected and adds that the ratios should rebound to very close to 2019 levels at half-year 2020 based on Lloyd’s recapitalisation process.

Lloyd’s, like most of its peers, has suffered material investment losses to date as a result of the financial market volatility and declining equity markets caused by the pandemic, notes S&P, continuing to highlight the exposures on its underwriting as well.

“We believe that Lloyd’s request to now-undercapitalized members to accelerate capital injections is a practical measure to maintain the market’s pre-COVID-19 levels of capital in uncertain times. We will continue to closely monitor the possible credit implications of COVID-19 for Lloyd’s and its peers, in terms of both investment losses and on exposed lines of business,” explains the ratings agency.

Earlier today, the Lloyd’s market announced changes to the Lloyd’s Claims Scheme to help managing agents respond effectively during the global coronavirus pandemic.

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