Moody’s Investors Service’s latest forecasts for the Lloyd’s of London insurance market indicate that Lloyd’s could record profits totaling around £6 billion ($10.8 billion) for the 2002 to 2004 years of account, with the cumulative returns on capacity equaling the profits it recorded between 1993 to 1995.
Commenting further on its forecasts, Moody’s stated that it had increased its forecast profits for the 2002 and 2003 years of account to 15 percent of capacity for both years, “reflecting the relative absence of major loss activity, and exceptional underwriting conditions for those years.” It also noted that the forecast was being issued “notwithstanding the deterioration in the US dollar exchange rate, the impact being offset by the improving development of the underlying incurred statistics for these years.” Over the last year the dollar has declined in value against the pound sterling by over 20 percent. It now takes approximately $1.80 to buy £1.00.
Moody’s said that “Although market conditions have reduced for 2004, overall conditions remain in line with those experienced in 1994/1995 according to Moody’s Underwriting Index. With utilisation expected to remain healthy, Moody’s stated that it is currently predicting a 12 percent return on capacity for the market for the 2004 account, assuming a ‘normal’ loss year.
“The results for 2002 to 2004 on a cumulative basis at 42% of capacity are therefore expected to match or exceed those reported between 1993 to 1995, including the extraordinary prior year releases relating to the transfer of reserves to Equitas. Moody’s further commented that it expected Lloyd’s to report a result for the closing 2001 year of account in line with its last forecast issued in September 2003 of a loss of 18.7 percent of capacity. ”
Mark Hewlett, Managing Director of Moody’s European Insurance Division, commented: “These are exceptional forecasts for the 2002 to 2004 years of account, demonstrating the enduring power of the Lloyd’s franchise and the earnings that can be achieved by syndicates underwriting at Lloyd’s at this stage of the cycle, and underline the financial strength offered by some of the syndicates currently trading in the market.”
Moody’s specific forecast breakdown by year is as follows:
2002: + GBP 2.0 billion [$3.64 billion] (+ 15%)
2003: + GBP 2.2 billion [$4 billion] (+ 15%)
2004: +GBP 1.8 billion [$3.28 billion] (+12%)
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