Equitas, the Lloyd’s vehicle established to run-off liabilities incurred prior to 1992, has released a summary of its financial results for the six-month period ended Sept. 30, 2003. It makes a full report only at the end of each fiscal year.
“During the first half of this year, Equitas has continued to monitor closely the assureds to whom it has asbestos exposure and it may be necessary to increase asbestos reserves at the year-end following our detailed review,” said the announcement. It added that the “Group is disappointed, though not surprised, that progress in the United States Congress toward asbestos reform legislation has been slow and that prospects for enactment of such legislation remain uncertain.”
Chairman Hugh Stevenson commented: “Even in this difficult environment we have vigorously pursued opportunities to reduce our outstanding asbestos liabilities by closing out asbestos claims on acceptable terms. In the first half of the year these efforts produced settlements resolving all asbestos claims with two major policyholders. A third such agreement has been reached since 30 September and two more are close to completion.”
Equitas continued to progress in other areas of the business as well. “Our three operating divisions – claims, recoveries and investments — have each produced contributions to surplus in the first six months of the financial year,” Stevenson noted.
The following is a summary of the financial information:
_ Claims paid amounted to £357 million ($614 million) compared with £451 million ($775.5 million) in the first half of last year. This decrease is in line with expectations.
_ Reinsurers’ share of claims paid amounted to £112 million ($192.5 million) compared with £133 million ($228.5 million) in the first half of last year. This decrease reflects, in part, the prior realisation of the reinsurance asset through commutations of outward reinsurance contracts.
_ Investment return amounted to £184 million ($316.5 million) compared with £556 million ($956 million) in the first half of last year. However, this investment return, unlike that of last year, exceeded the “unwinding” of the discount applied to net claims liabilities. Last year’s investment return reflected a dramatic fall in interest rates which increased the value of our bond portfolio; but as a result of the reduced discount rate and declines in equities, the overall returns were not sufficient to match the “unwinding” of the discount. This year both bond values and the discount rate have hardly changed. Equity values have recovered well since March and, coupled with returns on our bonds, the investment return was thus more than sufficient to match the “unwinding” of the discount.
_ Operating costs, which are included in claims paid, amounted to £42 million ($72 million), compared with £46 million ($79 million) in the first half of last year, and are below budget.
_ Exchange losses amounted to £7 million ($12 million), compared with a £32 million ($55 million) exchange loss in the first half of last year. The value of the portion of the Group’s surplus held in US dollars decreased in the first half of this year when translated into sterling due to the further weakening of the US dollar.
The bulletin also noted that, “as previously announced, Scott Moser assumed the role of Chief Executive Officer on 1 December 2003. His predecessor, Michael Crall has taken up a non-executive director’s role following his retirement.”
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