Moody’s Estimates Lloyd’s Losses at £5 Billion for 2000/2001

Moody’s Investors Service’s latest forecasts for the Lloyd’s Market indicate it will lose around £5 billion ($7.8 billion) for the 2000 and 2001 years of account.

According to the report, the loss predictions for those years are now £2.4 billion ($3.75 billion) and £2.6 billion ($4.05 billion) respectively – £430 million ($670.8 million) and £875 million ($1.365 billion) higher than Lloyd’s own forecasts for the losses in these years.

Moody’s did add a “Special Comment,” however, indicating that “assuming a ‘normal’ loss year, 2002 should offer a profit potential of over £1 billion [$1.56 billion].”

“Moody’s currently expects around 80% and 70% of syndicates underwriting in 2000 and 2001 respectively to be loss-making,” stated Dominic Simpson, VP/ Senior Analyst and author of the report. “In addition, we also forecast losses for each of the main Lloyd’s sectors in both years, with the exception of Motor, which is expected to be profitable in 2001.”

Moody’s explained that while 1999 represented the bottom of the most recent downcycle, the forecast losses for 2000 and 2001 are larger due to the impact of the WTC disaster. The report goes on to note that “Despite an incipient upturn in rates in 2000, market conditions remained weak, which, combined with the WTC effect, has led to a larger loss being forecast for the 2000 year of account than that recorded for 1999. As regards 2001, the disaster has exacerbated what Moody’s had already forecast as a loss-making year, with increased reinsurance costs and retention levels weighing on profitability.”

Ironically Moody’s points out that the WTC disaster has also acted as “a catalyst for significant improvements in rates and terms and conditions,” that, according to Simpson have made 2002 a year in which Lloyd’s can “look forward to the prospect of a decent profit with genuine optimism.”