Lloyd’s Raises Sept. 11 Net Loss Estimates 45%

November 28, 2001

Lloyd’s revised estimates of the net losses suffered by its syndicates as a result of the destruction of the World Trade Center and related events to £1.9 billion ($2.7 billion), £600 million ($849 million) more than its initial estimate, an increase of 45 percent, and more than most analysts had been anticipating.

Lloyd’s three year accounting system posts losses in the year the policy was written; therefore a portion of the WTC losses, some £650 million ($ 920 million) were attributed to the year 2000, more than doubling the previous loss projections for that year to $1.49 billion ($ 2.11 billion). The remaining losses will be accounted for in 2001.

“The primary source of the movement is in new property claims and increasing reinsurance exposures as other primary insurers have revised their loss estimates upwards,” said Lloyd’s announcement. “The gross loss has risen by only 6% to $5.7 billion [$8.06 billion] and is unlikely to affect the gross funding requirements for Lloyd’s US reinsurance business.”

Lloyd’s Chairman Sax Riley reiterated his confidence that Lloyd’s could ” manage its losses from September 11.” He said the figures were consistent with adjustments made by its managing agents over the last 8 weeks, and included provisions “for reinsurance failure.”

Riley also painted a positive picture for the future, noting that premium income had so far increased by 40 percent this year, up £1.2 billion ($ 1.7 billion) in the first 10 months compared to last year. He sees further increases as well as rising demand continuing in the wake of the terrorist threat.

Neither A.M. Best nor Standard & Poor’s reacted by downgrading Lloyd’s ratings, but both agencies said they were continuing to monitor the financial conditions of the overall market, as well as individual syndicates. They also confirmed meetings with senior officials at Lloyd’s to discuss the latest estimates, and their potential impact on Lloyd’s liquidity, capitalization and capacity.

So far there have been no indications of a wholesale withdrawal of capacity, but the 849 insurance companies and banks who provide over 80 percent of Lloyd’s capital may be less inclined to provide additional funds if opportunities are better elsewhere. By contrast enough new capital has poured into Bermuda to offset the entire amount of Lloyd’s losses, but there have been no reports of similar amounts flowing into Lloyd’s. The market is due to announce capacity figures for 2002 in about three weeks, and the situation may become clearer at that time.

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