Lloyd’s Sees Return to Profitability Despite Losses, Reduced Capacity

August 22, 2001

According to the latest report from the Association of Lloyd’s Members (ALM), which represents most of the individual investors, or “Names,” in Lloyd’s syndicates, the market should return to profitability beginning this year, but the report also revealed larger than expected loss figures for many of the corporate investors, who now control over 80 percent of Lloyd’s capacity.

Big insurance companies, located mainly in Bermuda, the U.S. and Continental Europe lost approximately 17 percent of their capacity in 1998, the last year for which accounts are available under Lloyd’s three-year accounting system. The overall losses exceeded $1.44 billion. Similar losses are expected for 1999, but 2000 should show better figures.

Structural reforms, the admission of foreign based brokers, and the tightening up of licensing requirements for Lloyd’s underwriters should begin to have a positive affect on the market this year. ALM Chairman Michael Deeny indicated that 2001 should show a small profit and 2002 is forecast to be around £300 million ($432 million).

Conversely the downturn in the stock market may help the recovery. Companies will have less cash to invest in syndicates, which will mean less competition for business which results in lowered premiums. It should also lead to higher underwriting standards, and less acceptance of marginal risks.

The report follows the announcement by A.M. Best that it was removing Lloyd’s from its credit watch, and the reaffirmation of its “A” rating. Lloyd’s Chairman Sax Riley, commenting on Best’s action, said that the removal of the “negative outlook” added momentum to Lloyd’s “continuing rise from out of the insurance cycle trough we saw in the late 1990’s.”

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