Lloyd’s CFO Comments on Lower Profits, Investments, Russia Office

September 29, 2010

As Lloyd’s published its first half results, Luke Savage, the chief financial officer, had a busy day on Tuesday. But he spoke briefly with Insurance Journal on some of the issues the report on the first half raised.

As detailed in the report, Lloyd’s profits during the period fell by more than 50 percent, mainly due to losses from the earthquake in Chile and the BP oil spill in the Gulf of Mexico.

According to Savage, the ultimate cost to Lloyd’s of the earthquake in Chile is “around $1.4 billion.” The Gulf oil spill losses are between $300 and $600 million.

He explained that while these catastrophes would affect premium rates, it would be limited to the regions and the particular coverage involved. “Rates in other sectors – marine, aviation, property – weren’t really affected.” In other words the current soft market in most sectors of the P/C industry is likely to continue, barring a major natural catastrophe.

Lloyd’s profits were also hit by lowered investment returns as interest rates continue to be near all time lows. “Lloyd’s has an extremely conservative approach to investments. We don’t put more than four or five percent into equities, hedge funds, or any other type of [potentially] volatile type of investment,” Savage said.

As a rule, Lloyd’s portfolio is about evenly split – “one-third in cash, one third in government bonds, and one third in high grade corporate bonds,” Savage said. However, he added, “we actually did better than we expected for the first half, as the pound and the dollar were stronger, while the Euro Zone had some troubles.”

Lloyd’s is seriously considering opening an office in Russia. “We do business in nine figures (millions) there already, so it makes sense to expand our presence,” Savage said. “Russia’s economy is growing; it’s becoming a global powerhouse.”

He also said that the country is “more open than [some] others; it’s becoming more like a western economy.”

However, he also said that the potential office would be of a representative nature. Lloyd’s has no immediate plans to become a licensed carrier in Russia.

Nor does it have any plans to acquire more licenses in the U.S. other than those it already has in Kentucky and Illinois. “We’re undergoing reorganization in the United States, but we have no plans to become an admitted carrier in any more states.”

He did indicate that if there were a federal charter, Lloyd’s might be interested, but agreed, that, as this seems unlikely in the near term, there are no plans to acquire additional U.S. licenses.

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