Record profits for Lloyd's but tougher times ahead
Friday 04 April 2008
Lloyd's of London reported record profits yesterday, but warned of tougher times ahead as prices soften and the financial climate worsens.
The 320-year-old insurance market's pre-tax profit for 2007 rose 5.2 per cent to £3.85bn, driven by healthy pricing and few major disasters.
Richard Ward, the chief executive of Lloyd's, said its syndicates may have to cut back on the business they underwrite to maintain profitability. Though Lloyd's has gained from the combination of high rates and low claims, its business is cyclical because customers expect their premiums to fall to reflect the lack of claims. That creates a danger of prices falling below the correct level for the risk involved.
"We are seeing rates soften. We don't want to write risks at unprofitable levels to chase market share," Mr Ward said. He added that the recent period of relatively few catastrophes such as hurricanes would inevitably come to an end.
Lloyd's paid out about £200m for last summer's floods in the UK but most of the £5bn bill was footed by retail insurers. The market also took limited hits from European windstorms.
Lloyd's results benefited from a 21 per cent return on its investments in bonds, money market instruments and other assets, as well as releases from reserves set aside for earlier claims. Mr Ward said it would be hard to reproduce last year's investment performance in the current market.
Andrew Hubbard, head of insurance services at the accountancy firm Mazars, said Lloyd's performed well but that the underlying results showed the cycle had already turned substantially. "If the back-year releases are ignored the result is actually a reduction from £3.29bn to £2.99bn, indicating that the pure year has not been as good and supporting the view that the market has softened in 2007," he said.
Lloyd's combined ratio, a key performance indicator, weakened to 84 from 83.1 a year earlier. The ratio measures costs and claims as a percentage of premiums.
Mr Ward said Lloyd's had "no exposure" to US sub-prime loans in its asset portfolio but that it would face claims as a result of the credit crunch. Lloyd's insures risks such as company directors' liability and professional indemnity, which could attract lawsuits from angry investors who have lost money in the crisis.
He said Lloyd's had cut back its dealings with financial institutions since the collapse of Enron and WorldCom.
- 1 Scottish independence: Ireland since 1919 is a lesson for Scotland in what a Yes vote means
- 2 Thailand deaths: Pair's bloodied bodies found naked on Koh Tao beach
- 3 Lego breaks out of the toy box and heads for the gallery
- 4 Julian Assange and Edward Snowden join piracy mogul Kim Dotcom’s political campaign in New Zealand
- 5 Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Thailand deaths: Pair's bloodied bodies found naked on Koh Tao beach
Jihadi John': MI5 may have identified Isis militant who killed David Haines but options limited
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Scottish independence: Police will be on high alert on Friday whatever the result
David Haines beheading: David Cameron says Britain will hunt down Isis 'monsters' shown in video murdering aid worker
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Scottish independence: Yes campaign feels the heat as Alex Salmond's NHS claims come under furious attack
£23m Birmingham cycle scheme is attacked by Tory councillor for not catering to the elderly
Salmond accused of laughing off national debt with ‘what are they going to do: invade?’ joke
iJobs Money & Business
£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...
£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...
£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...