Lloyd's today announced a 2007 profit of ?3.8 billion ($7.52 billion), up from ?3.66 billion ($7.24 billion) in 2006, despite softening market conditions.
Luke Savage, director, finance, risk management and operations in London, told National Underwriter that the favorable results were a combination of limited catastrophes, strong underwriting, high reserves in 2004, 2005 and 2006, and solid investment income.
He said that market participants so far this year are maintaining discipline in underwriting new business despite falling prices and looming difficulties.
"We fully acknowledge that our results this year were buoyed by solid investment income, where again, there's no guarantee that we'll perform as well next year," Mr. Savage said. "So for Lloyd's, I think that as a whole, 2008 is going to be a tough year."
Discussing the results, Lloyd's Chairman Peter Levene said in a statement that "2007 was another profitable year for Lloyd's, with the market reporting a ?3.8 billion profit and continuing to outperform its major international peers."
He said that "Lloyd's benefited from a limited exposure to catastrophes, but this has resulted in increased pressure on rates across all lines of business. The need to exercise underwriting discipline and maintain a focus on underwriting for profit rather than market share remains essential."
Mr. Savage said that to hold its own, Lloyd's is "certainly encouraging discipline in underwriting in the Lloyd's markets."
He said that in light of the "soft Jan. 1 renewals, we have met with every single managing agent to understand how they responded to those changing conditions. So far, what we've been hearing suggests that a very disciplined approach has been taken."
Lloyd's Chief Executive Richard Ward said "Lloyd's is in good shape to meet the challenges that face us, but we cannot expect the strong underwriting conditions and low levels of catastrophes to continue."
He added that last year's softening market conditions "reinforced, once again, the need for a clear strategy to enable the market to maintain discipline and strength in the face of increasing competition. As a marketplace we have a responsibility to our policyholders and to ourselves to ensure that we maintain our financial strength and security throughout the course of a cycle."
Financial highlights include:
o A combined ratio of 84 (2006: 83.1) that compares favorably with an estimated average of 93.8 for U.S. property and casualty insurers; 94.7 for U.S. reinsurers; 96.0 for European insurers and reinsurers; and 85.1 for Bermudian insurers and reinsurers.
o Thirty-four percent increase in central assets to ?1.95 billion ($3.86 billion), compared with ?1.45 billion in 2006 ($2.97 billion).
o Investment returns up 21 percent, to ?2 billion. This is up from ?1.66 billion in 2006 ($3.9 billion).
o Release of surplus reserves of ?8.56 ($16.9 billion). This compares to ?2.7 billion in 2006 ($5.3 billion).
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