Fitch has revised Lloyd’s outlook to negative from stable due to its underwriting performance and increased exposure to catastrophe risk.

It says a combined operating ratio of 98% is a “significant deterioration” from recent performance, driven by a return to more normalised levels of catastrophe activity, increasing expenses and falling risk-adjusted premium rates.

Lloyd’s is more exposed to worldwide natural and man-made catastrophes than its peers, which makes its combined operating ratio more sensitive to such events, the ratings agency says.

Fitch believes exposure to catastrophe risk has increased in recent years despite declining margins on this line of business. However, it says Lloyd’s modelling capabilities and reinsurance allow the market to mitigate tail risks “to some extent”.

It has affirmed Lloyd’s financial strength rating at AA-.

“The ‘very strong’ business profile of Lloyd’s of London supports its rating,” Fitch says.

“It is one of a select band of global (re)insurance providers capable of attracting high-quality and specialised business.”

Fitch expects capitalisation to support the rating, assuming future losses fall within limits expected by Lloyd’s.

The outlook may be revised to stable if Fitch anticipates an improvement in underwriting performance or reduced exposure to catastrophe losses.

A downgrade may occur if the net combined operating ratio remains above 97% for a prolonged period, or the market suffers a proportionally larger net catastrophe loss compared with its peers.

Meanwhile, a Lloyd’s spokesman told insuranceNEWS.com.au it plans to cut 70-80 jobs by the end of this year under a strategy to reduce duplication and improve efficiency.

This follows an email in May asking the market’s 1100 employees to register interest in a voluntary redundancy program.