Following Lloyd’s release of its composite results for the first six months of 2012 – a £1.53 billion [$2.4 billion] profit – Lloyd’s chief executive Richard Ward was understandably pleased. In a telephone interview he explained that the figures are compiled from those provided by each of the 88 syndicates operating at Lloyd’s, and are pre-tax.
Ward explained that when he became chief executive in 2006 there “were only 62 syndicates and 45 MGA’s at Lloyd’s.” Many of the syndicates hadn’t entirely disappeared, but consolidated their operations. He said the growth to the present number shows that “Lloyd’s is an attractive place to do business.”
That wasn’t always the case, but it’s become a good deal more attractive given the present economic crisis, and the extremely low interest rates. “We’re actually turning people away,” Ward said. No wonder – Lloyd’s return on equity (ROE) has averaged 14 percent over the last five years, including 2011. If 2011, the second largest loss year in insurance history, when Lloyd’s alone paid out over £13 billion [app. $21 billion] in claims, is excluded its nearer to 20 percent.
In line with the “Vision 25″ Plan, initiated by Lloyd’s Chairman John Nelson, Lloyd’s revenue base is expanding, but slowly. Ward said that around 75 percent of the syndicates’ income is generated from Europe, including the UK, and North America. Latin America generates between 8 and 10 percent, and the Asia-Pacific region around 12 percent.
It will take a while for business in those regions to grow. “You need to see further urbanization, and the growth of the middle classes,” Ward said. “You have to make sure that there is a need for insurance, as you can’t really sell people something they don’t need.”
Lloyd’s remains confident that growth, both in terms of urbanization and the demand for insurance products will continue in the Asia-Pacific and South American regions. “We’ve doubled revenues in Brazil, since we started there,” he said; “but then we started from a very small base.”
Lloyd’s is doing well in China, where it established a reinsurance subsidiary in 2007, and received a full license from the China Insurance Regulatory Commission (CIRC) in 2010 to write direct insurance .
India, however, is still a problem, and not just for Lloyd’s. Ward explained that despite promises over the years, government regulations still prevent Lloyd’s and many other re/insurers from doing business in the country. “We write a lot of offshore reinsurance from India,” he said, “but so far we’re still waiting for the government to change the regulations.”
The interview concluded with an admonition that, as there are still three more months in 2012, no celebrations should be held until January 1, 2013. Nonetheless, barring a spate of extreme natural catastrophes, or a worsening of the global economic situation, which so far hasn’t really affected Lloyd’s, the venerable market seems to be on track for a very profitable year.