Lloyd's of London, the insurance market, unveiled a fall in its first-half profits yesterday, in spite of a relatively benign six months of natural disasters.
Profits before tax fell £30m to £1.35bn for the six months to the end of June, mainly due to poorer investment conditions over the period. Its finance director, Luke Savage, said much of the poor investment performance was due to the weakness in the US dollar, in which Lloyd's holds a fair amount of its portfolio. However, the performance was also hit by lower equity returns.
The market had a strong half in terms of underwriting, however, with profits up 20 per cent on the back of a 90 per cent rise in gross written premiums. The market's combined operating ratio (COR) - a key measure of insurers' profitability - improved from 87.3 to 86 per cent. Anything under 100 per cent represents a profit.
The new chief executive, Richard Ward, who was presenting his first set of results, said the market had outperformed all its major competitors over the period, including Bermuda, which was running at a COR of 89 per cent.
Lloyd's has been under pressure in recent months as several major insurers, including Hiscox and Amlin, have set up new businesses in Bermuda. Hiscox and Omega have announced plans to redomicile their businesses there due to the more benign tax and regulatory environment.
However, Mr Ward said he was doing everything he could to keep Lloyd's as competitive as possible, adding that the interim results were proof that he had been succeeding. "It's difficult for us to compete with a 0 per cent tax regime," he conceded. "But we are improving the things which we know we can."
He said the market was still in discussions with the Treasury to try to ensure the UK market remains as competitive as possible.
Mr Ward added that good progress was being made on a number of projects to make the market more efficient. He said Lloyd's is aiming for all claims to be handled electronically by the end of 2007. Earlier this year, the chairman of Lloyd's, Lord Levene, admitted the market was still in the "dark ages", and needed to modernise.Reuse content