Lloyd's of London is set to deliver bumper profits for its wealthy private investors, known as names, in a dramatic turnaround following five consecutive years of losses.
According to an analysis by AM Best, the insurance rating agency, individual names can expect returns of 7 per cent next year and 9 per cent in 2003. They are likely to reap greater rewards than the corporate names admitted to Lloyd's after many individual names went bankrupt in the crises that afflicted Lloyd's throughout the 1980s and 1990s.
The Association of Lloyd's Members, which commissioned the research, said the individual names who survived Lloyd's troubles had the best agents and access to the highest quality syndicates. By contrast, corporate names – usually overseas insurance companies hunting for investment opportunities – had bypassed agents and chosen poorly managed syndicates. "By the time they got to the party all the pretty girls had been snapped up from the dance floor," an ALM spokesman said.
Lloyd's files results three years in arrears, but releases preliminary figures for 1999 next week. The ALM said individuals had seen losses of about 7 per cent during 1998 and 1999, against the Lloyd's market average of 10 per cent. Analysts expect losses at Lloyd's to be £8bn over the last five years.
The forecast revival in the fortunes of Lloyd's is based on the assumption of a prolonged bear market in equities. Plunging stock markets weaken insurers' balance sheets, leaving fewer companies capable of underwriting risky business. That decreases the options for companies seeking cover, allowing insurers to obtain fat profits from increased premiums. At the same time, premiums for casualty insurance have been increasing amid higher compensation awards in the courts.
The ALM warned that Lloyd's returns may not be as buoyant if equity markets regained their upward momentum. However, it said there was still time for individuals wanting to become names to get in on the action. "We are expecting this to be a longer lasting cyclical upswing than on previous occasions. This fact hasn't been fully appreciated," a spokesman said.
To be admitted, a name must typically possess assets worth £350,000. Investors can also gain exposure by buying shares in holding companies owning several of the Lloyd's syndicates, such as Atrium Underwriting.
General insurance premiums last soared throughout the mid-1990s in the wake of Hurricane Andrew and the Northridge earthquake that struck Los Angeles, for which claims totalled $31bn (£21.4bn). Experts say the industry faces risks of similar disasters and payouts.Reuse content