Lloyd's insurers Wellington Underwriting and Limit both suffered huge slumps in pre-tax profits in 1999, they revealed in their results this week as they announced their merger will be official within a week.
The insurers, who announced they were in merger talks to the Stock Exchange, will create Lloyd's largest independent insurance company with an underwriting capacity of £1.2bn.
Wellington's pre-tax profits tumbled to £5.1m for 1999, a drop of £20.5m compared to £25.6m the year before. Limit suffered an equally severe slump in pre-tax profits to £21.3m in 1999 compared to £53.4m in 1998.
Both companies said they were hit by the competitive soft market conditions in the global market. Operating profits fell by nearly a half in each case. Wellington's dropped to £8.6m from £16.8m in 1998 and Limit's to £19.7m compared to £34.5m.
The two insurers were both hit by a series of natural disasters. Wellington said the Turkey earthquake cost £10m in claims, hurricane Floyd, £9.7m, and the floods in Mexico and hail storms in Texas added another £13m.
Gross claims incurred increased to 105% of gross earned premiums in 1999, (60% in 1998).
Wellington, however, said its own syndicates had managed to outperform their markets. Limit also said there was an "exceptionally high level of natural catastrophes" in 1999, but added its reinsurance programme meant there was no single large claim.
"The sheer frequency of loss has adversely affected our reinsurance programme," said chairman Jonathan Agnew.
He added that claims inflation had hit Limit's motor account.
The Torch motor business, bought for £10m, has been rationalised by discontinuing much unprofitable business including its UK car account, which is being integrated with Limit's Ensign motor business.
Limit has also reduced its syndicates' exposure to some of the most competitive areas of underwriting including, marine excess of loss insurance and marine hull insurance.
Garwyn, Limit's loss adjusting business increased its turnover from £4.5m in 1998 to £7.6m in 1999.