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(From Post Magazine)
As the widespread but ultimately short-term effects of the 2005 hurricane season - the worst on record - receded from the headlines, the media's attention for 2006 for Lloyd's and the London market started with a focus on who was to replace Nick Prettejohn as chief executive of Lloyd's.
Both the national and trade press scrambled over themselves to get hold of the latest news on the selection process, which Lloyd's reported in early January had been whittled down to just three candidates. This was to be just one of several stories in 2006 that, while not as dramatic as the series of natural disasters that occurred the previous year, would prove to have far-reaching consequences.
One of the biggest stories of 2006 - the surprise announcement of the sale of Equitas to Berkshire Hathaway on 20 October - was seen as a magnificent outcome for Lloyd's, and received widespread coverage. Although the corporation was careful not to be seen speaking too publicly about the deal, which it had only been involved in formulating just weeks before the announcement, it was clear to all the market would be a major beneficiary.
On the morning the news of the deal broke, ratings agencies Fitch, Standard and Poors and Moodys announced they were likely to upgrade Lloyd's rating when phase one of the Berkshire Hathaway and Equitas deal was complete. Despite AM Best saying that its Lloyd's rating was unlikely to change on the back of the deal, it admitted the "transaction will substantially reduce long-term uncertainty relating to the latter's (Equitas') reserve development".
Lloyd's must have rubbed its hands together at the disposal of the market's legacy asbestos exposures, which could only lead to increased prospects of future investment following the announced ratings upgrades next year. Indeed, sources within the franchise revealed they were hoping for a two-notch ratings rise.
Ultimately, the landmark $7bn (GBP3.56bn) deal secured by Warren Buffett removed the risk that the 34,000 unlimited liability names will be called on for bottomless funds should Equitas fail. However, one analyst commenting at the time played down the significance of the deal.
Just a thought
Chris Hitchins, an analyst for Keefe Bruyette and Woods, revealed that, materially, the risk to Lloyd's had not changed. He argued that the benefit to Lloyd's would come about largely because the ratings agencies factored in long-tail risks when …