Lloyd’s Announces Financial Results – $1.32B Profit for 2002

After weathering asbestos claims, various disasters and the Sept. 11 attacks, Lloyd’s announced today that 2002 was a spectacularly profitable year. The 315-year old insurance market posted net profits on an annual basis of £834 million ($1.32 billion), its first profitable year since 1996.

Under the traditional 3-year accounting system, which Lloyd’s is in the process of scrapping, the initial profit projection was even better, £1.484 billion ($ 2.345 billion). The results are even more impressive when compared with the £3.1 billion ($4.9 billion) loss it posted in 2001, following the WTC attacks.

The combined ratio for the Lloyd’s market dropped from 140.3 percent in 2001, which actually given that year’s loss events wasn’t all that bad, to 98.6 percent last year. According to figures cited in Lloyd’s report only XL Capital did better with a 97 percent combined ratio, while European Reinsurers had a combined ratio of 105.1 percent, U.S Reinsurers 121.3 percent, and many companies, notably Munich Re and Swiss Re were over 100 percent.

Lloyd’s acknowledged that it benefited from its unique market position. While not all its syndicates made money, many of them were very profitable. Net earned premiums rose 8 percent to £10.669 billion ($16.857 billion), compared to £9.888 billion ($15.61 billion) while net incurred claims fell by 36 percent to £6.652 billion ($10.51 billion) from £10.332 billion ($16.325 billion) in 2001. Net operating expenses rose 16 percent to £3.827 billion ($6.046 billion) from £3.304 billion ($5.22 billion).

Lloyd’s calculates profits and losses only on its underwriting activities, and has thus been insulated from the sharp declines in global equity markets and falling interest rates. It reported net syndicate investment return of £644.638 Million ($1.018 billion) last year, a one percent increase.

Lloyd’s capacity is now around £14.4 billion ($22.75 billion) and it expects to write policies using every bit of that capacity this year. Given the usual caveat concerning anticipated losses, that should bode well for more profits in 2003.

It couldn’t have happened at a better time. While Lloyd’s has instituted a number of structural changes, moving to a new franchise system, scrapping three-year accounting, capping the number of individual names, and introducing technological improvements such as its partnership with Xchanging for back office processing and its Project Blue Mountain, it still has a ways to go. One commentator on the BBC observed that the average investor in Lloyd’s syndicates would have lost around half of his investment over the last five years. Lloyd’s will need a few more years like 2002 to make up for those losses.