Much of the exposure has been reduced through commutations and policy buyouts, the report noted.

However, Equitas still is a significant rating factor for Lloyd's, S&P said. In addition, the fact there still remain some scenarios in which it is insufficiently capitalized to be successfully run off means there is the potential for the carrier to have a negative impact on the world's oldest insurance market in terms of confidence among brokers, clients and capital providers, Mr. Rivaldi explained.

Nonetheless, the "unparalleled understanding of the asbestos issue from underwriting, political and legal perspectives" demonstrated by the Equitas team deserves praise, Mr. Rivaldi added.

S&P attributes the balance sheet reduction to, among other factors, a steep decline in liability risk and an even steeper decline in credit risk.

However, there still is some potential for financial strain on Lloyd's coming from Equitas, S&P warned.

Mr. Rivaldi said discerning the true financial picture of Equitas remains challenging since it is required to provide minimal public disclosure.

"There are no real incentives for the management to portray the company in a more favorable light, since it prejudices its negotiating position with policyholders," Mr. Rivaldi said--positing that the weaker Equitas appears to be, the more policyholders would be willing to agree to a discounted settlement of claims.

And should the time come when Equitas cannot fulfill its claims obligations in full, it can implement a proportionate coverage plan under which it can pay claims--a worst-case scenario that could prompt severe repercussions for a market that always pays 100 cents on the dollar, S&P noted.

"Notwithstanding Equitas' legal separation from the Lloyd's market, we believe the implementation of proportionate [Equitas] cover would most likely lead policyholders to bring claims against Lloyd's for balances outstanding," Mr. Rivaldi said.