London-based Lloyd’s syndicates face a triple whammy of strong competition, excess capacity and softening rates despite solid results last year, Standard and Poor’s (S&P) says in a report.

New and smaller syndicates, which typically cover non-catastrophe events, are already feeling the pain, with combined operating ratios above 100%.

“In general, the syndicates that reported the highest combined ratios were smaller, newer or had higher-than-average liability line-of-business exposures,” S&P says.

“Market challenges also caused rates to plummet further.”

S&P’s analysis of 94 syndicates shows an average combined operating ratio of 90%, aided by better performances from bigger players with allocated capacity of more than £500 million ($974.23 million) each.

The biggest syndicates, defined as having allocated capacity above $US1 billion ($1.35 billion), have an average combined operating ratio of 88%.

“Most of the syndicates that reported the lowest combined ratios, indicating the strongest underwriting performance, were those that wrote a lot of catastrophe cover,” S&P says.

“These syndicates benefitted from lower, less frequent claims resulting from catastrophe events [last year].”

The successful syndicates have “acted defensively by reducing their net catastrophic risk appetites in anticipation of possible lower returns. They have scaled back their operations in terms of both the lines of business and amount written and reverted to their core books.”

Smaller and newer syndicates are the worst performers. The nine worst performers have combined operating ratios of 115% or higher.

“We expect to see volatility in the start-up phase of syndicates due to the high start-up expense ratio,” S&P says. “In particular, if a syndicate incurs a number of large claims in proportion to its total start-up volume, its performance gets distorted.

“Scaling up the volume reduces the impact of individual claims on start-ups.”