Fitch Removes Lloyd's from Rating Watch Negative, Affirms AA- Rating

Fitch Ratings has affirmed Lloyd's of London's insurer financial strength (IFS) rating at AA- (very strong) and removed Lloyd's from Rating Watch Negative. Fitch's outlook for Lloyd's is stable.

In a statement, Fitch said that Lloyd's removal from Rating Watch Negative is primarily based on Lloyd's completing its capital collection from members in June 2020 to fully compensate for its estimated £3 billion in COVID-19 losses, net of reinsurance, and improvements in underlying underwriting performance before major losses in the first half of this year.

The affirmation of the AA- IFS rating primarily reflects Lloyd's very strong business profile and capitalization and leverage, the rating agency said.

Fitch noted that Lloyd's reported combined ratio increased to 110 percent in the first half of 2020 from 102 percent in 2019. Major losses—heavily influenced by COVID-19—totaled £2.4 billion and were driven primarily by contingency, property, and casualty classes of business. At the end of the first half of the year, Lloyd's anticipated net ultimate losses from the pandemic of £3 billion for the full year.

According to the rating agency, Lloyd's underlying combined ratio before major losses improved to 90 percent in the first half of this year from 95 percent in 2019, reflecting positive results from the company's performance management division initiated in 2018.

The improvement in underlying underwriting performance will help Lloyd's absorb possible upward revisions to 2020 COVID-19 losses, Fitch said, given the still material uncertainties related to possible business interruption, liability, and other classes of pandemic-related claims.

Fitch said it ranks Lloyd's business profile as "favorable" compared with that of global insurance and reinsurance companies, driven by its strong franchise, large operating scale, and significant diversification within property-casualty (re)insurance.