Fitch Ratings Inc. has revised its outlook for Lloyd’s of London and Lloyd’s Insurance Co. (China) Ltd. to negative from stable, citing a deterioration in its underwriting performance and increasing exposure to catastrophe risk.

Lloyd’s said in a statement that the insurance sector is facing challenging conditions.

In Tuesday’s announcement, New York-based Fitch affirmed Lloyd’s insurer financial strength ratings of AA-.

Fitch also revised the outlook for the Society of Lloyds, which provides specialty insurance and reinsurance products, to negative from stable.

Fitch said in its statement that its calculated 98% combined ratio for Lloyd’s “was a significant deterioration from recent performance, driven by a return to more normalized levels of catastrophe activity in the market as well as increasing expenses and falling risk-adjusted premium rates.”

It said Lloyd’s exposure to worldwide natural and man-made catastrophes is higher than that of its peers, which is reflected in its combined ratio being more sensitive to catastrophic events.

“Fitch believes that exposure to catastrophe risk has increased in recent years despite declining margins on this line of business,” said the statement. “However, Fitch believes that Lloyd’s exposure management, through the group’s modeling capabilities and the reinsurance in place, allows the market to mitigate tail risks to some extent.”

Referring to the outlook, the Lloyd’s spokesman said in the statement: “The conditions within the insurance sector continue to be challenging, and the Lloyd’s market is not immune from the pressures firms have been facing in recent years.

“It is an absolute priority for Lloyd’s to address the performance gap within the market, and there are actions in place to ensure a relentless focus on underwriting discipline and profitable lines of business whilst ensuring syndicates operate within our agreed risk appetite.

“We believe this approach will allow successful syndicates to continue doing what they are good at and make the Lloyd’s platform attractive for future business and customers.”

Lloyd’s also said: “We are pleased that Fitch has reaffirmed our rating of AA-, following Standard & Poor’s confirmation that we would continue to be rated A+. We remain A (excellent) with AM Best.

“This acknowledges the strength of our capital position and the fact the Lloyd’s market remains as the global hub of specialist insurance and reinsurance.”