Standars and Poor’s lowered its Lloyd’s Syndicate Assessment (LSA) on Canopius Managing Agents on Saturday, saying the syndicate’s capitalisation had deteriorated to a marginal level. The LSA was moved from 2+ to 3- with a stable outlook.
The ratings agency said the recent deterioration of the capitalisation of the syndicate was “not supportive of an LSA in the ‘3’ range”.
The assessment of the capital of Canopios Managing Agents was done by looking at the capital adequacy of Canopious Group Ltd (CGL), which generated around 73% of the syndicate’s 2011 capacity.
The ratings agency said, “We believe that CGL’s current risk-based capital is materially deficient at ‘BBB’ level because of the revised catastrophe risk charge being significantly higher than what we previously included in our capital model.
“We are expecting CGL to report a significant bottom-line loss for year-end 2011 that will materially reduce its shareholders’ funds, reflecting large losses in 2011”
They said the slightly increased market risk also played a minor role in the downgrade.
Despite the downgrade S&P said they syndicate continues to perform well, with a strong competitive position, good prospective earnings and strong risk controls. However its marginal capitalization, exposure to potentially large losses, and the potential execution risk associated with its long-term growth strategy partly offset these positive factors, the ratings agency said.
“The stable outlook reflects Standard & Poor’s expectation that CGL’s capitalization and, in turn, the syndicate’s capitalization will not deteriorate further,” an S&P spokesperson said.
“We expect the syndicate to report a net combined ratio of 110% and a material bottom-line loss for year-end 2011 because of the large losses.
The spokesperson added that, “in 2012, we expect Canopius will return to good operating results, achieving a combined ratio close to 95%, assuming average historical levels of catastrophe losses and a difficult pricing environment in most noncatastrophe business.
“Given the low performance of most investment asset classes, we believe it will be difficult for the syndicate to post a return on revenue above 10% in 2012.”
