Lloyd's of London, the historic insurance market, yesterday announced a massive annual loss and said it had doubled its provisions for bad debt on reinsurance cover.
Lloyd's revealed the gloomy news as it broke with the tradition of announcing results three years in arrears. Instead it said it was being "open and transparent" by publishing figures for 2001, which included its largest-ever loss from a single event – the 11 September terrorist attacks.
Lloyd's said the 2001 loss would be around £3.11bn, including a £1.98bn hit from the attacks on the World Trade Centre and Pentagon.
This was slightly up on a previous estimate by Lloyd's that the devastation in the United States would wrack up liabilities of £1.9bn. Other losses from last year included the sinking of the Petrobras oil rig off Brazil and the Tamil Tiger attacks on Sri Lanka's national airline.
The loss for 2001 was the second biggest in the history of Lloyd's. Its largest 12-month loss was in 1990, when the society was hit by asbestosis claims and Hurricane Hugo. The loss was £2.4bn, but that would have been far higher if it had been calculated on an annualised basis.
The catastrophes of last year scuppered hopes by Lloyd's of breaking even or even making a small profit in 2001 after five years of heavy losses.
Lloyd's conceded that it would not be able to claim on all of its reinsurance, and has doubled provisions for reinsurance bad debts for 2001 to £1bn.
Lloyd's would not disclose how many of its own syndicates affected by 11 September had reinsured their cover with other Lloyd's vehicles.
The worst examples of this practice in the early 1990s ended up in "spirals", where some syndicates ended up reinsuring themselves. But Andrew Moss, Lloyd's finance director, insisted there were no spirals and was confident reinsurance within Lloyd's would be paid.
Stephen Searby, insurance analyst at Standard & Poor's, said: "Bad debt provisions have been increased because Lloyd's is coming down harder on syndicates which in the past have under cooked their reinsurance provisions and because of a handful of reinsurance failures recently."
Nick Prettejohn, chief executive of Lloyd's, said the outlook for the society was "very positive" as it has taken advantage of rising insurance premiums. For 2002 Lloyd's has attracted £12.2bn of financial backing which is its largest ever.
The 300-year-old society has embarked recently on radical reforms to try to make it more competitive in the global insurance and reinsurance market.
As well as moving to annual accounting, Lloyd's wants to scrap the practice of names underwriting on an unlimited liability basis.
Mr Prettejohn said: "Our record is still unacceptable and we have to introduce fundamental change to address that." The changes will be voted on at an extraordinary general meeting in September.
SWISS RE WORST EVER LOSSES FOR INSURER
Swiss Re yesterday reported better-than-expected results for 2001, saying that its net losses were 165m Swiss francs (£69m), due mostly to the 11 September terrorist attacks.
The world's second-largest reinsurer had warned the market in February that losses for the year would be in the region of Sfr200m.
The attacks on New York are expected to cost Swiss Re Sfr2.96bn. The company's losses for 2001 would have been far greater if it had not been able to use Sfr1bn of reserves to cover some liabilities. Swiss Re used a total of Sfr1.5bn of this capital, used to cover catastrophic losses and called equalisation reserves, last year. It said it would replenish the buffer capital "within the next few years".
The company said prospects for this year and next were positive. Walter Kielholz, the chief executive of Swiss Re, said: "Despite the worst ever year for insured losses, Swiss Re is now well placed to capitalise on improving markets and achieve superior results in the coming years."
Swiss Re said it has seen a 14 per cent average increase in the price of premiums, and expects premiums to continue to be expensive into next year. Its shares gained 2 per cent to Sfr164.25.
Swiss Re's combined ratio – claims as a proportion of costs – deteriorated to 124 per cent. Excluding the impact of 11 September, the ratio improved to 110 per cent from 117 per cent.Reuse content