OREANDA-NEWS. Fitch Ratings has affirmed Lloyd's of London's (Lloyd's) and Lloyd's Insurance Company (China) Ltd's Insurer Financial Strength (IFS) ratings at 'AA-'. It has also affirmed the Society of Lloyd's Long-term Issuer Default Rating (IDR) at 'A+' and its subordinated bonds at 'A-'. The Outlooks are Stable.

KEY RATING DRIVERS
The affirmation reflects Lloyd's significant market position in both insurance and reinsurance classes, robust risk-adjusted capitalisation, low financial leverage and strong underwriting performance. These positives are somewhat offset by Lloyd's fairly high exposure to international catastrophes.

Lloyd's wrote GBP15.5bn of premiums in 1H15, an increase of 7% (1H14: GBP14.5bn) over the equivalent period in 2014. Underwriting performance remained in line with the prior year despite continued pressure on rates. Lloyd's reported a 1H15 combined ratio of 89.5%, up 2.1pp from 1H14 (87.4%) due to increased major claims and price softening.

Fitch recognises that Lloyd's continues to face a number of headwinds that will also test the wider (re)insurance industry. These include a persistently low yield investment environment and softening prices across certain major (re)insurance classes. The conservative and hence lower yield investment portfolio held by the Lloyd's Market means we view a deterioration in technical profits as the greatest risk to earnings across the rating horizon.

Fitch believes that Lloyd's exposure to worldwide natural and manmade catastrophes is somewhat higher than its peers. This is reflected in Lloyd's combined ratio being more sensitive to catastrophic events than peers. However, market oversight by Lloyd's Performance Management Directorate provides Fitch with increased confidence that cross-cycle earnings volatility is effectively managed.

Fitch's assessment of Lloyd's risk adjusted capitalisation is 'Very Strong' according to the agency's Prism Factor Based Model (FBM). Fitch expects capitalisation to continue to support the ratings, assuming future losses fall within limits expected by Lloyd's.

RATING SENSITIVITIES
An upgrade is unlikely in the near to medium term unless Lloyd's consistently outperforms its 'AA-' rated (re)insurance peers, while maintaining 'Very Strong' capital adequacy.