Record profits for Lloyd's of London

By LUCY FARNDON
Updated:

The Lloyd's of London insurance market made record profits of £3.9bn last year, but warned such a performance will be hard to repeat.

Relatively few natural disasters and a benign US hurricane season meant that huge claims were few and far between.

Chief executive Richard Ward said that '2010 is going to be far more difficult'.

It is only March, but already Lloyd's underwriters know they are likely to have to pay out up to $500m (£333m) in claims for the Chilean earthquake, with smaller amounts for the French storms and disaster in Haiti.

The Lloyd's Building

The Lloyd's Building: Chief executive Richard Ward said that '2010 is going to be far more difficult'


Overall though, its syndicates appear to be taking a more sensible approach to underwriting business and are not just trying to undercut rivals for the sake of growth.

Ward is keen for underwriters to 'walk away' rather than set premiums too cheaply.

'One of the reasons that the banks got into so much trouble is because they did not know how to price risk,' he said.

A more diversified portfolio and tougher discipline on pricing meant that Lloyd's paid out just over £86 in claims for every £100 it received in insurance premiums.

This was stronger than most US property and casualty insurers, though the Bermudan market, which focuses on high-risk catastrophe insurance, saw a payout of just £84 for every £100.

Lloyd's paid out a total of £8.6bn in claims in 2009, spanning property, marine, casualty and reinsurance.

Major costs included the Air France crash, European windstorm Klaus and the Australian wildfires.

However, the market was large enough to cope with the payouts as well as make record profits.

One of Lloyd's quirkier jobs last year was to insure the tongue of Gennaro Pelliccia, Costa Coffee's taster, for £10m.

The market's worst year was caused by the World Trade Centre collapse in 2001, which resulted in £5bn in claims for that single event.

Ward says the unpredictability of catastrophe events means that Lloyd's earning stream will always be volatile.

The last time it made an annual loss was during 2005, where hurricanes Katrina, Rita and Wilma pushed it into the red by £103m.

Also helping its profits for 2009 was a strong investment performance, with returns rising to £1.8bn from £957m in 2008.

Lloyd's puts around a third of its premium income into cash, a third into government bonds and a third into corporate bonds - the latter of which benefited from a tightening of spreads.


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