Lloyd's Rating Increased

Standard & Poor's raised its insurer financial strength rating on the U.K.-based Lloyd's insurance market to "A-plus" from "A."

At the same time, the agency raised its counterparty credit rating on The Society of Lloyd's to "A-plus" from "A." The outlook is stable.

The upgrade, said S&P, reflects the recent successful conclusion of phase one of the Equitas group's reinsurance transaction with National Indemnity Co., progress with regard to phase two, and what S&P credit analyst Rob Jones termed the "unstoppable momentum" behind the improving London market business processes.

In the Equitas transaction, National Indemnity Co. will provide up to $7 billion of reinsurance for the Equitas group's loss reserves, rendering the likelihood of a future Equitas deficit and any related contribution from Lloyd's remote.

Equitas is the group established to reinsure and run off asbestos and environmental liabilities up to 1992 for Lloyd's syndicates.

Phase one involves $6.2 billion reinsurance, and phase two involves a transfer of liabilities from Lloyd's members to Equitas and the provision of a further $1.4 billion of reinsurance.

The ratings reflect Lloyd's strong competitive position, operating performance, capitalization and financial flexibility. These positive factors are partly offset, however, by relatively high reinsurance reliance and continuing operating performance volatility. The consistency and effectiveness of strengthened catastrophe risk controls are also yet to be tested, S&P said.

The rating firm added that the stable outlook reflects the following expectations:

o Subject to normal catastrophe loss experience for 2007, Lloyd's will post a combined ratio below 95 and rate of return greater than 12 percent. Performance will weaken in 2008 in line with an anticipated continuing softening operating environment.

o Lloyd's main capital providers will remain committed to the market.

Capital adequacy will stay strong, as reflected in central assets available for solvency purposes remaining at about $3.5 billion and Lloyd's solvency ratio remaining above 300 percent.