More investors in Lloyd’s raises GWP by 64%

Hampden Underwriting, which provides investors with a limited liability direct investment into the Lloyd's insurance market, announced premium written during 2009 rose 64% to £8.6m.

It said the outlook for future years looked promising but warned the Chilean earthquake and the Deepwater Horizon rig explosion will still impact the 2009 account and adversely affect some of the early estimates. It said it hopes to make profits of 5% to 12.5% of capacity.

Financial highlights £'000 (2008 in brackets)

  • GWP 8,610 (5,245)
  • Reinsurance premium ceded 1,753 (854)
  • Net premiums written 6,857 (4,391)
  • Change in unearned gross premium provision -8 (-1,982)
  • Change in unearned reinsurance premium provision 116 (218)
  • Sub-total 108 (-1,764)
  • Net earned premium 6,965 (2,627)
  • Net investment income 375 (358)
  • Other underwriting income 24 (-1)
  • Other income 337 (25)
  • Sub-total 736 (382)
  • Revenue 7,701 (3,009)
  • Gross claims paid (2,836) (670)
  • Reinsurance share of gross claims paid 472 (108)
  • Claims paid, net of reinsurance -2,364 (-562)
  • Change in provision for gross claims -1,457 (-1,740)
  • Reinsurance share of change in provision for gross claims 170 (378)
  • Net change in provision for claims -1,287 (-1,362)
  • Net insurance claims -3,651 (-1,924)
  • Expenses incurred in insurance activities -2,513 (-720)
  • Other operating expenses -552 (-450)
  • Operating expenses -3,065 (-1,170)
  • Operating profit/(loss) before tax 985 (-85)
  • Income tax expense/credit -261 (37)
  • Profit/loss attributable to equity shareholders 724 (-48)

Chairman, Sir Michael Oliver said: "I am delighted with the results this year, particularly when one remembers that the first year of account in which Hampden Corporate Member participated was the 2008 year which will not close until the end of 2010.

“The increase in net asset value and the achievement of a pre-tax profit of £985,000, compared to a loss last year of £85,000, is testament to the quality of our underwriting portfolio constructed by Hampden Agencies and of our policy of acquiring other corporate members which enabled us to have exposure to the excellent 2007 year.

“The current outlook appears promising with the prospect of attractive returns resulting from the 2008 and 2009 years of account but it is important to realise that insurance has, is, and will continue to be a cyclical business.

Hampden Agencies’ market view

Hampden Agencies said in its analysis of the Lloyd’s market: “What a difference a year makes. A year ago, 2008 had marked the steepest fall in the benchmark Standard & Poor's 500 Index since 1931, with a fall of 38.5%.

“At the end of the first quarter of 2009, just after the stock market had bottomed, the financial crisis of 2008 ranked as the largest ‘capital event’ over the past 20 years for the US property and casualty industry. Losses on investments, both realised and unrealised, had eroded 16.2% of the industry's surplus, exceeding the previous record for an insured loss of 13.8% for Hurricane Katrina.

Optimism

“Against this background, we were optimistic that 2009 would prove to be a year of transition with the market moving from a softening/soft market (falling rates) to a hardening market (rising rates) in 2010.”

The turnaround in the asset markets has been in complete contrast to the position a year ago. The Standard & Poor's 500 Index at the end of April 2010 was up 76% from the March 2009 lows, which is the sharpest rise since 1932/1933. Credit spreads have narrowed and with it the value of assets on insurers' and reinsurers' balance sheets has increased.

“Combined with a benign year for natural catastrophes in 2009, policyholder surplus, (a measure of its capital base) in the United States is now within 2% of its pre-financial crisis peak and softening market conditions have reasserted themselves other than in loss affected lines such as aviation and UK motor.

Better Lloyd’s controls

In the short term, market conditions overall can best be described as challenging. The Lloyd's market continues to benefit from improved discipline and controls both at Managing Agency level and Franchise Board level.

“We do not anticipate a return to the aggressive market conditions of the late 1980s and late 1990s, characterised by under-reserving and broad terms and conditions.

“In particular, we continue to see the reinsurance marketplace as being disciplined with no sign of the naïve reinsurance capacity which has been associated with previous soft insurance markets.

“Our conclusion is that now is the time to be cautious in view of constrained demand and ample supply of capital.

Reduced capacity

“With Lloyd's setting the business planning exchange rate for 2011 at $1.50:£1, the same rate as for this year, we expect many syndicates to reduce their capacity for 2011 in the face of a general downward pressure on rates.

“Encouragingly, we do not see evidence of the lack of discipline which characterised the loss making years at the end of the 1980s and 1990s.

“We expect the pressure for rate rises to build over the next two years due to a combination of reserve releases tapering off and continued low investment returns.

“While our current message is one of caution, investors in Hampden Underwriting can be reassured by our view that Lloyd's is currently better positioned relative to its peers than at any time over the past ten years.