Lloyd's gets back in profit and claims £290m from reinsurers

Lloyd's of London yesterday said it was squaring up to take on six of the world's top insurers who are refusing to pay out claims, as the 300-year old insurance market revealed it had returned to profit for the first time in six years.

After sustaining a record £3.1bn loss in 2001 from claims on the World Trade Centre attacks, the market made a profit of £834m in 2002. Net resources increased 85 per cent to £7.5bn and the assets held in its central fund rose 55 per cent to £563m.

Lloyd's has now started arbitration procedures, however, against the insurers that provide cover for this central fund. It is used to bail out members that are unable to meet their liabilities, and payments made from it are, in turn, recouped by an insurance policy with six insurers including Swiss Re, Hannover Re and Employers Reinsurance Corporation. The consortium is withholding payment of claims that could leave Lloyd's with a £290m bill.

"The reinsurers deny that claims thus far made fall under the contract terms," a spokeswoman for Swiss Re said yesterday. Analysts, however, are seeing the decision to withhold payment as indicative of the financial distress being felt by global reinsurers, many of which have taken heavy investment and claims losses.

Lloyd's has been helped by a rapid rise in the rates insurers have been able to charge for cover in the past year, amid fears of more terrorist attacks. Rates for some lines, such as employer liability insurance, have more than doubled over the year and Lloyd's is expecting to write up to £14.4bn of premiums in 2003.

The rate rises are coupled with an improvement in underwriting profitability. Lloyd's paid out claims worth 98.6 per cent of what it received in premiums in 2002. Claims in 2001 cost Lloyd's 40 per cent more than what it collected in premiums.

Lord Levene of Portsoken, the new Lloyd'schairman, said: "This is not just an improvement or a turnaround. These are very good numbers that are not just a flash in the pan. The business is fundamentally very strong going forward."

Lloyd's yesterday said the hostilities in Iraq did not pose a threat to the market, saying only 1 per cent of its business was in the region.