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S&P REVISES LLOYD'S RANKINGS

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LONDON -- Standard & Poor's Corp. is revamping and renaming its ranking system for syndicates trading at Lloyd's of London.

S&P in London last week unveiled an enhanced version of its syndicate rankings and renamed the service Lloyd's Syndicate Performance Measures. The five-tiered "crown" ranking system, introduced in 1994, has been replaced by three categories of "bells."

S&P has been criticized in the past for alleged inaccuracy in its crown rankings, partly because users mistook them for ratings. The crown rankings, as well as the revamped system, look at a syndicate's longevity prospects rather than financial strength and claims-paying ability.

The mixed capital base of limited and unlimited liability capacity behind syndicates means it is impossible for S&P to rate the financial strength of individual syndicates, said Kevin Willis, S&P's director in charge of producing the new performance measures.

To clarify the point, Lloyd's requested the new service be renamed, said an S&P spokesman.

Ina Barker, executive director of the Assn. of Insurance & Risk Managers, welcomed the enhanced service, saying that for corporate insurance buyers, the "bottom line is security." An increasing number of U.K. risk managers are looking at ratings and similar services because "the security of the service providers is critical" over the long term, she said.

The syndicate performance measures sit alongside the A+ rating that S&P gave the overall Lloyd's market in October. Oldwick, N.J.-based A.M. Best Co. gave the market an A rating (BI, Oct. 6). S&P's highest rating is AAA and Best's is A++.

Under S&P's new system, a syndicate can receive up to three bells relating to its performance compared with what S&P determines is a nominal average syndicate in the market. One bell corresponds to "no better than market-level performance"; two bells means "better than market-level performance"; and three bells represents "significantly better than market-level performance." The measures will be updated annually.

Of the 135 syndicates to which S&P so far has assigned perfor-mance measures, 59 were given one bell, 46 two bells, and 30 have three bells.

S&P could not assign a performance measure to 16 syndicates because they had not been trading long enough to amass sufficient data, said Mr. Willis.

Seven ratios have been taken into account when preparing the bell performance measures, two more than for the crown system. In addition to gross and net claims ratios, expense and investment return ratios and the development of capacity by underwriting year, S&P now has factored in the levels of underwriting profitability and reserving adequacy.

Performance measures have been assessed using the syndicate results for the closed years 1991 to 1994, plus publicly available information on the open 1995, 1996 and 1997 years.

With the reinsurance of pre-1993 liabilities into Equitas Ltd., some syndicates were able to release funds from reserves, while others had to pay additional reinsurance-to-close premiums to Equitas.

S&P has smoothed the skew in figures related to the pre-1993 business by spreading the effects, if any, across the relevant previous years of account rather than attributing all of it to the 1992 year.

Mr. Willis noted that "the average three-bell syndicate is twice as large as a one bell, and two-bell syndicates are twice as large, on average, as an average one-bell." In fact, the average capacity of one bell syndicates is 42.9 pounds million ($70.8 million), average for two bell syndicates is 84.1 million pounds ($138.8 million) and average for three bells is 104 million pounds ($171.6 million). This seemed to reflect the pattern of "the larger the enterprise, the better (the policyholder) can expect for security," commented Mr. Willis.

Pressure from the Lloyd's market has led to the reduction of the number of ranking categories in the performance measures.

There had been "a gratuitous differentiation at the lower levels" of the crown system among syndicates, according to Mr. Willis, who added that the designations in the new system are "probably more conservative than in the past."

Mr. Willis conceded that a heavily underperforming syndicate still would be awarded the same number of bells -- one -- as a syndicate that meets the market average.

But Mr. Willis defended the decision to change the number of categories, saying that "from the policyholder's perspective, the market rating is very important. . .the performance measures are looking at different characteristics of the market," and indicate to the policyholder "whether the lead syndicate will be around to service the business in the years ahead."

Lloyd's Syndicate Performance Measures are available at a cost of 1,950 pounds ($3,218) for the full service or 75 pounds ($124) per syndicate report from Roma Greening, Standard & Poor's, Garden House, 18 Finsbury Circus, London EC2M 7BP, 44-171-826-3652.