The market's resilient operating performance and capitalization in the challenging economic environment, coupled with the continued reduction in a number of legacy issues, has been rewarded, the review said.
Pre-tax profit rose by 39% in the first half of 2009 to £1.3bn ($2.1bn), driven by improved investment conditions and low catastrophe losses. Aggregate pre-tax profits reported since 2001 are £14.7bn.
Market share gains, rating affirmations and continued strong investor interest prevailed and Lloyd’s UK sterling underwriting capacity has doubled in size since 2001.
Underwriting leverage across the market has also declined dramatically since 2001, partly reflecting the increasing sophistication of the risk-based capital-setting regime. Lloyd’s reported an underwriting profit of £678m for the first half of 2009, a 3% decline on the pervious year.
The accident year net loss ratio improved by 0.9 points to 59.1%. This was down to greater profitability of catastrophe-exposed classes out-weighing rising claims frequency in casualty and other classes most exposed to the recession, said Guy Carpenter. Catastrophic losses remained below average at £258m, the largest events being the Air France crash, Windstorm Klaus and the Australian bushfires.
The business gains in the market’s results for the first half of 2009 demonstrate the its enhanced competitive position. Gross written premium rose by 35% to a record £13.5bn. Moreover, a growth in catastrophe-exposed classes coincided with a year of below average losses, which bodes well for full-year profitability, said Guy Carpenter.
With regards to investment, which has been a challenge across the board, the interim investment return increased slightly from 0.9% to 1.6%.
However, Guy Carpenter predicts increasing pricing pressures, slowing reserve releases and materially lower investment returns will take its toil on the market in 2010. Lloyd’s Franchise Performance Directorate (FPD), found it necessary to “address some optimism” in terms of projected growth rates and loss ratios in the syndicate business planning process for 2010 and capital requirements have been increased to reflect the higher levels of catastrophe exposure within the market.
Lloyd’s has stated that actual claims incurred from the banking sector crisis continue to be “relatively modest”. The market has written less large US financial institutions business since 2000 and, given the “claims-made” nature of most policies, exposure to such losses looks containable, said Guy Carpenter.
Solvency II will push the market into preparatory action this year. A noteworthy change is the reclassification of letters of credit from tier one to tier two capital under the new regime, point out Guy Carpenter. Under the reclassification Lloyd’s syndicates will no longer be able to utilize letters of credit to fund 100% of their capital requirements from 2012.
This month Lloyd’s is expected to publish a strategic plan for the next three years focusing on leveraging the market’s currently strong position, adopting electronic messaging, developing new markets and responding to regulatory pressures. The results of the review place Lloyd’s in a solid position for 2010.