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S&P gives Lloyd’s clean bill of health

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LLOYD’S of London’s has weathered the global financial crisis over the last 12 months with “resilience”, according to influential ratings agency Standard & Poor’s.

The US financial services group has reaffirmed the Lloyd’s insurance markets’ A+ grading with a stable outlook, noting that its international business remains highly competitive.

Lloyd’s has had to withstand not only global economic instability, but the third worst year of catastrophe losses for insurers in 2008 and damaging exchange rate fluctuations.

“In our view, the impressive level of resilience that Lloyd’s has demonstrated to the events of the past 12 months further reinforces its attractiveness as an operating platform,” S&P said.

The clean bill of health comes just weeks after the world’s oldest insurance market hired consultants Deloitte to look at the opportunities opened up by the meltdown in the financial markets.

The Lloyd’s strategic review is due in January 2010, and will focus on what is the right geographic spread and what business it should cover in the wake of the financial crisis.

The S&P assessment of Lloyd’s follows Fitch’s reaffirmation of its A+ rating and AM Best giving the market an A (excellent) assessment.

Lloyd’s, which is one of the premier centres for marine and energy insurance, won recognition from S&P analysts on the strength of its operating performance, its capitalisation and financial flexibility.

S&P emphasised the Lloyd’s market’s global competitive edge, which is underpinned by its brand strength, policyholder loyalty, syndication of risks and premier position as an insurance and reinsurance centre.

Analysts with S&P also highlighted the strength of Lloyd’s investment strategy, liquidity, solvency and capital adequacy.

Efforts to improve business processes, new entrants into the market and the completion of its post-1990s reconstruction via the renewal Equitas deal were held as crucial aspects of its renewed competitiveness.

Lloyd’s finance and risk management director Luke Savage said the verdict reflected efforts to re-establish the market’s brand and reputation in recent years.

Mr Savage added: “We did that during a time of unprecedented financial activity, where our cautious approach, relying on steady rather than stellar gains, went against the grain.”

S&P said that the Lloyd’s operating performance in 2008 was strong in “an extremely challenging operating environment”.

However, the ratings agency does not expect a return to the 2006-2007 peak, and noted as a weakness its relatively high reliance on reinsurance business.

The Lloyd’s Corporation and its managing agents handling of the last soft market also indicated its ability to manage underwriting cycles and tackle the present crisis, S&P analysts said.

Lloyd’s earlier this month announced it would launch a root-and-branch strategic review of its business prior to Berkshire Hathaway’s Tom Bolt taking over from Rolf Tolle as the market’s head of underwriting next year.

Although Lloyd’s 2008 pre-tax profit was down 50% to £949m ($1.57bn) due in part to Gulf of Mexico hurricanes in September last year, its £1.9bn central assets are the strongest ever and its 89% combined ratio compared well with its competitors.