Lloyd’s announced preliminary estimates Tuesday that it would suffer an overall loss of at least £1.11 billion ($1.6 billion) for its 1999 year of account. It had already announced losses in 1998 of £1.06 billion ($1.54 billion). Lloyd’s Chairman Sax Riley told London’s Financial Times that the losses for those years “comes as no surprise.” He indicated that more recent years of account were “showing much more positive characteristics,” and that 98-99 appeared to have been “the bottom of the loss cycle.”
Lloyd’s three year delay in closing its accounts, a holdover from the days when it might take a year to learn of a lost ship, makes it difficult to estimate its current financial position. However, there have been some major changes, all aimed at increasing profitability.
The Lloyd’s market supplies roughly 5 percent of the world’s reinsurance coverage, and rates are finally increasing, even as underwriters are becoming more selective about the risks they agree to cover.
Corporate syndicates, mainly operated by big insurers and brokers, now account for an estimated 83 percent of Lloyd’s capital, which is therefore more substantial and less volatile than in the past when it relied more on individual “Names.”
Lloyd’s has taken significant steps to increase loss reserves and bad debt provisions. It has also strengthened or eliminated loss making enterprises. The FT notes that 40 syndicates, who no longer underwrite business in the Lloyd’s market, were responsible for half the total losses in 1998 and 37 percent in 1999.
Finally both years coincided with numerous and costly catastrophe losses; hurricanes in the U.S. and the European storms in particular. 2000 was relatively speaking catastrophe free. According to figures from Swiss Re insured losses dropped from $31 billion in 1999 to just over $11 billion last year.
If Lloyd’s continues its rigorous approach to risk management, and if the weather cooperates, its financial results should show improvement.
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