May 24, 2004 by Canadian Underwriter
Official results for 2003 from Lloyd’s for 2003 highlight the London market’s strong rebound since 9/11, and give evidence to overall industry trends of strong underwriting performance dragged by lingering liability issues from prior years.
Lloyd’s is reporting net pre-tax profit of 1.9 billion pounds for 2003, up from 834 million pounds in 2002. This comes from an underwriting victory, with the market posting an overall combined ratio of 90.7%, down from 98.6% in 2002. The 2003 accident year produced a ratio of 8.60%, with 4.7% representing prior year reserve movement.
However, the market’s biggest line, casualty, produced a combined ratio of 110.4% in 2003, with 15.6% of this related to prior years. This compares with ratios under the “magic 100%” in every other major line of business. Property came in at 89.4%, while reinsurance was 89.3%. Similarly, motor (93.6%), marine (89.7%), energy (83.4%) and aviation (93.0%) were all well below the 100% mark.
The market wrote just 1.4% higher gross written premiums in 2003, at 16.4 billion pounds, up from 16.2 billion pounds in 2002. Net earned premiums, however, were up 9.8% year-over-year, to 11.7 billion pounds from 10.7 billion pounds.
Total assets for the market at the end of 2003 were 48.9 billion pounds, down slightly for 49.3 billion pounds at the end of 2002. But capital and reserves in 2003 were 10.1 billion pounds, a 35% jump over the 7.5 billion pound mark set in 2002. And, in 2003 the market’s central fund grew by 235 million pounds, to 711 million pounds.
“Whereas the profit reported last year (2002) was, at that time, an all-time record, the profit we are reporting this year (2003) has soared way off the chart. Those who understand the Lloyd’s market, however, will recognize that this is not an industry where constant unerring profit growth can be achieved,” says Lloyd’s chairman Lord Peter Levene. “Whereas we can, therefore, celebrate this remarkable figure for which both the market and the corporation can take great credit, we have to recognize that it has been achieved in the context of a very hard market, and thus a period when good results are likely.”
With the onset of a softer market, Levene says now will be the time when the reforms made over the past few years, specifically the introduction of the franchise system to the market, can be accurately assessed. “Its success will be measured when the market turns less favorable, and we can show whether we have put in place disciplines that will avoid some of the severe difficulties which Lloyd’s has faced in years gone by. It does not mean a constantly increasing profit line; we hope, however, it does mean a constantly favorable performance when measured against our peers.”