Strong market and insurance premium rises push Lloyd's towards profitability in 2002

Lloyd's of London, the insurance market, is expected to return to profitability in 2002 after a five-year spell in which the …

Lloyd's of London, the insurance market, is expected to return to profitability in 2002 after a five-year spell in which the market was hit by a series of natural disasters and transport accidents.

The Association of Lloyd's Members (ALM), which represents most of the individual investors or "Names" at Lloyd's, said in its latest report that the market was being helped by improving market conditions and rises in insurance premium rates.

It said that Names should start earning profits from 2001 onwards as the market began to recover from the crippling losses of the 1990s. Lloyd's of London, which was on the verge of collapse between 1988 and 1992, last made a profit in 1996.

Since then it has been affected by a number of crises such as Hurricane Georges, and the Swissair disaster.

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It was also badly hit by a downturn in the insurance cycle during the late 1990s after losing market share to a new breed of insurers using global centres such as Bermuda. The ALM predicts that the Lloyd's market will report profits of £300m in 2002 underpinned by the improving market.

"We believe that the upturn will last longer in previous cycles," said Mr Michael Deeny, ALM chairman.

The ALM said that in previous years, the upturn in the insurance cycle had been cut short as insurers moved into the Lloyd's market funded by capital from buoyant stock markets. This in turn had led to intense competition and cut short any recovery.

The ALM said that given the current downturn in the stock markets, this prospect was unlikely, meaning that the upturn would last longer.

Data in "Lloyd's Market Results and Prospects 2001", compiled in conjunction with AM Best, showed that the international insurance groups, which include large US and Bermuda insurers, had lost up to 17 per cent of their capacity a standard Lloyd's measure of profitability in the Lloyd's market during 1998.

The individual investors or Names who invested their capital did better during the same period losing 7 per cent of capacity in 1998. UK-based Lloyd's companies listed on the London stock market also lost about 7.2 per cent of capacity in 1998. Mr Deeny said that many international insurance companies had not performed well because they were newer to the market and had invested in smaller, second-tier managing agencies or set up syndicates.

"Many of the international insurance companies that came to Lloyd's in recent years have proved themselves to be part of Lloyd's problem and not part of the solution," he said, adding that the poor performance of the international insurers had exacerbated past losses. The ALM said that if the whole Lloyd's market had performed as well as the capital invested by the Names, then Lloyd's would have reported losses for 1998-99 of £1.21 billion.