Insurance giant hits £3.9bn profit but warns of constraints in 2010
Lloyd’s doubled its profits last year, helped by a quiet catastrophe season and resurgent financial markets.
Pre-tax profits shot up to a record £3.9bn in 2009, from £1.8bn in 2008. Combined operating ratio improved to 86.1%, from 91.3% in 2008; and investment returns increased to £1.76m, from £957m.
Finance director Luke Savage said this year would be tougher, however, with a likely increase in catastrophe activity and lower returns from investments.
Savage said: “In 2009, catastrophe only accounted for 2% of combined operating ratio, compared to an average of 10%, so we’d have to be pretty lucky for 2010 not to be worse. The 3.9% investment returns were on the back of equity markets rallying and credit spreads on corporate bonds tightening.
“They cannot tighten much further and the rally in equity seems to have run out of steam. To a large extent, it was fuelled by quantities easing with all the money going into asset prices.”
Chairman Lord Levene said 2009 was the insurance market’s best ever performance.
Levene said: “The result has been achieved despite the economic turbulence that characterised most of 2009, although we were certainly helped by a low level of catastrophe-related losses, thanks to a benign Atlantic hurricane season. The market can be proud of what it has achieved in 2009.”
Mazars insurance director Paul Bennett said the results were strong, but fired off a word of warning on reserve releases.
“Prior-year releases continue to make a positive contribution (£900m) towards the result for the year and, although this is less than the £1.3bn in 2008, once currency effects are removed from 2008, the figures are broadly comparable. Lloyd’s cautions against expecting this level of release to continue indefinitely," he said.
He believes the next big challenge will be for the market to adapt to Solvency II’s new capital requirements by the 2012 deadline. “Preparing for Solvency II is high on the Lloyd’s agenda at the moment, and over £50m a year is now being spent on getting ready for 2012.
“Lloyd’s has taken on board the problems of getting 51 different businesses to the required standard and considers itself in good shape – even being held out as an example to other insurers by the FSA.”