Rating agency Fitch remains negative on insurance and reinsurance market Lloyd’s of London, saying that recent catastrophes pose a threat to its capital base.
While recent losses from hurricanes Harvey, Irma and Maria, as well as the Mexican earthquakes and Californian wildfires, remain within expected tolerances, Fitch Ratings says that they “place some pressure on Lloyd’s capital.”
Fitch has affirmed Lloyd’s ratings, following a review of recent catastrophe event impacts, but remains negative on their outlook.
Fitch expects that while capital is pressured, Lloyd’s will be able to recapitalise, but the losses in the third-quarter of 2017 place additional pressure on the outlook for the re/insurance market.
Fitch said that Lloyd’s capitalisation will “likely deteriorate to a level that is not in line with the current rating as a result of 3Q17 catastrophe losses.”
But the rating agency notes that this is expected to be temporary and it believes Lloyd’s will restore its capitalisation to a level commensurate with the rating as part of the next ‘coming into line’ process that closes before end-2017.
But in the meantime Lloyd’s is more exposed to any additional major losses, until this ‘coming into line’ is completed, and further major losses could threaten Lloyd’s ability to recapitalise itself sufficiently to maintain its current rating levels.
Fitch said that the majority of recent losses are expected to fall within the buffer above syndicates’ solvency capital requirement on an ultimate basis, and as long as the losses do not develop negatively there is not expected to be a major impact on the central fund.
Fitch continues to believe that Lloyd’s has been underwriting more catastrophe risk exposure, despite the fact that margins on this business have declined in recent years, leaving it particularly exposed to such events.
However, Fitch also believes that pricing is set to improve for catastrophe risk underwriting in 2018, which could see Lloyd’s positioned for better profits as long as losses remain benign.
