As the old saying goes, “Hope for the best, but prepare for the worst.” While Lloyd’s 2005 £103 million ($180.6 million) loss estimate may not be the absolute best, it’s certainly a lot better than it could have been after last year’s disastrous hurricanes. By comparison Lloyd’s posted a £1.367 ($2.4 billion) profit in 2004.
Lloyd’s financial results for 2005 (available on its Website at: www.lloyds.com) showed net claims from the hurricanes totaled £3.309 billion ($5.802 billion). Lloyd’s Chairman Lord Levene, noted: “2005 was the worst year on record for natural disasters, costing the insurance industry far more than the impact of the 9\11 attacks on New York. For Lloyd’s to emerge from such a year with just a small loss represents an excellent performance by the market. That outcome would have been unthinkable just a few years ago, which is the true measure of the progress Lloyd’s has made.” Despite the huge losses Lloyd’s bulletin noted that they had a “negligible impact on Central Fund.”
Lloyd’s also reported that its solvency ratio improved to 379 percent from 300 percent in 2004), and a further increase in its “central resources for solvency purposes” to £1.838 billion ($3.223 billion) from £1.663 billion ($2.916 billion) in 2004.
“There are many lessons for the industry from a year of unprecedented devastation from natural perils,” Levene continued. Then he warned: “We must not fall into the trap of thinking that 2005 was a freak year which could never happen again. We must continue to improve the way we model potential risk and spread our exposures. We must only accept risk at an adequate price and on the right terms.”
Levene also alluded to the increasingly competitive insurance environment. “Lloyd’s has every reason to be confident about the future,” he indicated. “We are in sound financial shape but we are also alive to the constant challenges from a highly-competitive global insurance market. There is a strong determination within Lloyd’s to deliver the continuous improvements in our competitiveness and efficiency that will keep this market at the forefront of specialist insurance.”
Luke Savage, Lloyd’s Finance Director and Acting Chief Executive added: “Last year demonstrated yet again some of the fundamental strengths of the Lloyd’s market, with the rating agencies reaffirming Lloyd’s “A” rating, at a time when many insurers were facing downgrades.
“Our risk modeling and risk management arrangements helped ensure that every Lloyd’s insurer was able to trade on through the hurricanes, which meant there was a negligible impact on Lloyd’s Central Fund.
“We signaled last November that given the extreme impact of those hurricanes it was unlikely the Lloyd’s market would report a profit for 2005, and the result we are announcing today is in line with those expectations.
“Conditions remain profitable, and the market is well placed to take advantage of current opportunities. We showed last year that the market also has the flexibility to respond quickly to changing circumstances. The Lloyd’s market, therefore, has every reason to be optimistic about prospects for 2006.”
As the bulletin notes, and as Lloyd’s has previously indicated, before the hurricanes, financial plans had called for reducing the Syndicates’ capacity in the face of a softening market. However, Katrina and her sisters shelved that scenario, and Lloyd’s has increased its capacity by 7 percent from £13.7 billion ($24 billion) in 2005 to £14.8 billion (nearly $26 billion) in 2006.
Lloyd’s will host a meeting for investors and investment analysts at its Lime Street headquarters at 09.45 (BST) (10:45 EST). Those wishing to participate, either by attending in person or via conference call are invited to contact Lloyd’s by emailing firstname.lastname@example.org for further details. A recorded version of the Webcast will be available for playback in the afternoon today, April 6, 2006.
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