News Currents

April 23, 2007

Lloyd’s posts more than $7 billion in record pre-tax profit

What a difference a year makes. On March 29, Lloyd’s announced pretax profits for 2006 of $7.2 billion compared to the $202 million loss it posted in 2005.

Lloyd’s also achieved an extremely good combined ratio of 83.1 percent, compared to 2005’s 111.8 percent. The figure looks even better when compared with “an estimated average of 93 percent for U.S. property and casualty insurers, 95 percent for U.S. reinsurers, 94 percent for European insurers and reinsurers and, 86 percent for Bermudan insurers and reinsurers,” according to Lloyd’s announcement.

Assets in Lloyd’s Central Fund increased by 14 percent to $2.856 billion from $2.487 billion in 2005. Other highlights included the following: Gross written premiums up 9.6 percent to $32.25 billion; Net written premiums rose 12.1 percent to $25.94 billion; Net earned premiums up 7.7 percent to $24.93 billion; Net claims incurred down 34.6 percent to $12.22 billion; Net operating expenses up 18 percent at $4.21 billion.

Lloyd’s combined ratio in all classes of business was less than 100 percent with the lowest figure being 65 percent in “aviation” and the highest a 99 percent ratio in “energy.” “Motor” (auto) was the only sector to show an increase, moving from 91 percent to 96 percent. “Reinsurance” dropped from a dizzying 135 percent to a very respectable 81 percent, while “property” went from 119 percent to 82 percent. “Casualty and “marine” were both at 89 percent.

Lloyd’s Chairman Lord Levene and CEO Richard Ward noted that “we benefited from strong underlying conditions and an exceptionally low level of catastrophes.” Ward stressed Lloyd’s “strong competitive position” and said its results “compares well with our global peers.”

Both leaders inveighed against complacency. Levene indicated “it would be unrealistic to expect such a favorable claims experience this year. With a trend for more frequent and severe natural catastrophes.” While Ward stressed that “retaining our competitive edge requires an unrelenting focus on all our customers.”

Levene’s remarks addressed two themes: 1) Lloyd’s reputation, and 2) its leading position in the UK’s financial services industry.

Financial giant in U.K. and beyond.

Turning to the importance of the financial sector to the UK’s economy, Levene pointed out that Lloyd’s “is a major component of the Financial Services industry of the UK. Indeed, we represent over 50 percent of the total London market business.

Richard Ward, who replaced Nick Prettejohn as Lloyd’s permanent CEO a year ago, has emerged as a forceful leader, dedicated to reforming Lloyd’s antiquated business practices. He’s determined to do away with the famous slip cases full of paper documents and the four tons of paper Lloyd’s produces every day. Following breakthroughs with service providers Xchanging and RI3K, as well as some of the leading brokers and Syndicate managers, he’s well on his way to achieving that goal. Lloyd’s Syndicates are already at 85 percent of contract certainty.

Ward’s next task, taming the cycle, won’t be so easy, but he’s upbeat. “There is clear evidence that the market, having worked with the Franchise Performance Directorate over a number of years, is now better prepared to manage the insurance cycle,” he stated. “Through a combination of underwriting for profit rather than market share, the use of state-of-the-art modeling tools and better availability and application of data, it is hoped that the market can shield itself from the worse effects of the cycle.”

In his final remarks Ward thanked Lloyd’s staff, indicating they have “provided strong leadership over the past year and have been instrumental in the delivery of our objectives.”

Topics Excess Surplus Reinsurance Lloyd's

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Insurance Journal Magazine April 23, 2007
April 23, 2007
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