Moody’s predicts $7 billion profit for Lloyd’s

Moody’s Investors Services is forecasting a profit of 3 billion pounds (Cdn$7 billion) for the Lloyd’s of London market in the 2002-2003 years of account. This comes on the heels of a forecasted 4.5 billion pounds (Cdn$10.5 billion) in losses for 2000-2001.
Moody’s expects profit of 1.6 billion pounds (Cdn$3.75 billion) in 2002, and, assuming a normal loss year, profit of 1.4 billion pounds (Cdn$3.25 billion) this year.
Moody’s notes that 2001 was dominated by the World Trade Center attacks, which account for a vast majority of the forecasted losses. However, the beginnings of a recovering market with price increases were seen in 2001, with aviation providing a prime example.
Moody’s does add, “however, with a number of WTC related underwriting issues potentially taking years to resolve, and with a very large amount of recoverables still due from reinsurers for 2001 and prior year reserves, the outcome of the 2001 year is still subject to great uncertainty, and a prudent approach has been taken to forecasting the final result.”
But the turnaround comes with 2002, where Moody’s Underwriting Index shows that pricing levels are comparable to 1993-1994. “This, together with almost full capacity utilization and a relative absence to-date of any major loss activity bar the European Floods, leads Moody’s to currently forecast a significant profit of around 12% of capacity.”
Further strengthening in 2003 is expected to lead to a 10% return on capacity, given no unusually large losses.
However, Moody’s does expect a disparity between the results of the best and the worst performing syndicates, with the potential for some syndicates to post results in excess of 20% of capacity. “Lloyd’s in the previous upcycle showed its ability to rebound from a period of substantial losses, and history is likely to repeat itself,” says Mark Hewlett, managing director of Moody’s European insurance division. “Most business lines underwritten at Lloyd’s have seen a considerable improvement in pricing as well as terms and conditions, and a period of strong profitability is anticipated in the current upturn.”