Lloyd’s is £51m better off

Lloyd’s has announced its estimate of the excess of central assets over solvency shortfalls has increased by £51m since 30 June 2009 to £2,548m.

Assets over solvency at 3 Sept 09 - 30 June 09 -31 December 08

• Society net assets 1,092 1,060 990
• Subordinated liabilities £964m - £948m - £1,082m
• Central assets £2,056m - £2,008m - £2,072m
• Callable layer £530m - £530m - £495m
• Other solvency adjustments £67m - £64m - £41m
• Central assets for solvency purposes £2,653m - £2,602m - £2,608m
• Solvency shortfalls (£105m) - (£105m) - (£133m)
• Excess of central assets over solvency shortfalls £2,548m - £2,497m - £2,475m

Lloyd’s said the increase of £16m in subordinated liabilities since the interim report came from an unrealised exchange loss on the translation of euro denominated debt following the movement in the euro rate of exchange from 1.17 at 30 June 2009 to 1.09 at 30 September 2009.

Investments

Lloyd’s said the recovery in riskier asset classes has continued. Equities have risen by 50% from their lows in March and are up as much as 20% in the year to date.

Corporate debt has also performed very strongly as credit spreads have fallen dramatically from the very high levels prevailing earlier in the year.

Strong investor demand for such assets in recent months has been driven by growing confidence that the global economy is on the path to recovery as well as a desire to move away from the very low yields currently offered by cash and similar low risk investments.

Government bonds

However, most Government bonds also performed well in the third quarter as the success of unconventional methods of easing monetary policy, together with moderating inflation expectations, caused yields to move lower.

Overall, favourable market movements have resulted in investment returns somewhat above the very modest levels which might be predicted from the low prevailing levels of interest rates and risk free yields, both in the third quarter and the year to date. However, the scope for further such gains is increasingly limited and we expect that current market levels will make it difficult to achieve significant returns in the balance of the year.

Overall, the Society's investment return for the nine month period was a gain of £110m (30 June 2009: £20m). This includes the profit of £36m arising on the purchase and cancellation of Lloyd's debt securities in April and foreign exchange losses of £17m (30 June 2009: £32m) on euro denominated assets held to match the Society's liabilities, which are off-set by an equivalent reduction in the sterling value of the relevant liabilities.